A guide to borrowing small amounts
Are you looking for help obtaining that extra bit of credit? Do you want to avoid entering into long-term agreements? It is true that some small loan amounts come at a higher cost, but this guide will look at the best options in obtaining small amounts of credit.
Freedom Finance offer a footprint free ‘soft search’ service which is put in place to protect your credit rating when searching for a loan. This innovative tool allows you to enter your specific details to obtain a personalised quote from the lenders that best suit your circumstances and all without leaving a footprint on your credit file. A mark is only left on your credit file after a formal application is made. This removes the risk of multiple rejections, which are damaging to your credit history.
If you are looking to borrow a small amount, it is wise to first contact the bank that holds your current account to request an overdraft facility. If granted, the fixed amount will be credited to your account and then repaid at a lower interest rate than a loan or credit card. If you are disciplined, the overdraft can be repaid fairly quickly. Overdraft interest rates are usually charged at around 18% but there are offers of interest free arrangements so make an enquiry with your bank. Make sure you do not exceed the agreed overdraft, as this will incur an unarranged overdraft charge, as well as damaging your credit rating.
A personal, or unsecured loan is a small borrowing of a fixed amount, usually between £1,000 and £25,000, which is set at a fixed interest rate across a fixed term. This is a great way of borrowing a small amount because it enables you to budget efficiently due to the monthly repayments staying the same.
0% credit card
If you need the credit for purchases, why not go for a credit card with an interest free period? Many deals offer interest free purchases for up to a year, so if you can repay the debt within this time then the cost of borrowing will be zero. Be aware of the interest rates following this period, they may be substantially higher than a card with no interest free offer. You may wish to balance transfer but this activity also shows on your credit rating, and should not be done often.
Ask a friend or relative
Where possible, it is most favourable to ask to borrow a small amount from a friend or relative who is happy to lend it to you. Agree on a short repayment term and stick to it. There is no risk to you as the borrower nor will the lending affect your credit rating. You must agree on whether or not interest will be paid on the loan and for personal reasons, make sure the loan is repaid on time!
If you need to raise a small amount of cash, there may be alternatives to borrowing from the bank. Selling unwanted goods will raise some funds, or shopping around for improved deals on your car insurance or mobile phone may also save you money each month. Perhaps you could cancel luxuries such as gym memberships or nights out until the required amount of money has been raised.
All borrowing, however small, leaves a footprint on your credit rating so make sure that you never borrow more than you can afford to repay. While managing a small loan well can actually improve your credit, missing payments or having to extend the term can cause a fall in credit score.