Is a Loan Really My Best Option?

Figuring out the most appropriate way to borrow money will depend on your situation. You may have a particular large purchase in mind, like a car, a home loan or house extension. It may be that you just need some better cash flow to pay for various items for the home. Whatever the circumstances, your main two options for borrowing money are credit cards and personal loans.

Figuring out the most appropriate way to borrow money will depend on your situation. You may have a particular large purchase in mind, like a car, a home loan or house extension. It may be that you just need some better cash flow to pay for various items for the home. Whatever the circumstances, your main two options for borrowing money are credit cards and personal loans.

Usually, the small purchases are better served with a credit card, as you have the flexibility to borrow small amounts here and there, but never have to pay interest on more than you actually use. For larger sums – say, five thousand pounds upwards – a loan from a reputable bank may be more suitable; personal loans from Santander start from a competitive 7.4% APR for amounts between £7,500 and £10,000, so could be worth a look.

If you are looking to make serious home improvements, you may need to go a step further and take out a secured loan. Essentially a second mortgage, a secured loan is usually cheaper in terms of interest, as the loan is secured against the value of your property. It is generally paid back over a number of years, even decades, in fixed monthly installments.

For smaller amounts, a credit card is hard to beat for flexibility. You can borrow any amount (up to a pre-ordained limit) and simply pay interest on what you borrow. Provided you always pay a monthly minimum, payback is highly flexible and can be done over as long or short a period as you desire. Ideal for small, irregular financial commitments, credit cards are also perfect for making online purchases, which often can’t be paid by debit card.

Traditional loans will usually cost more in interest payments if you are only borrowing a small amount, as lenders generally offer discounts for larger sums. Ensure that you include all interest repayments in your calculations when comparing loans, as they can differ hugely. Santander is one of the more competitive lenders, offering typical APRs of around 8.9%. All banks set your APR according to the size of the loan and your credit history. If you have always paid borrowed money back on time, you can expect a favourable rate.

Above all else, research the market thoroughly before committing to a lender. Visit the AIFA to obtain unbiased advice on loans versus credit.