Thinking about borrowing money

At times it's good to have the option of borrowing money. But it’s important to find out what’s right for you. Ultimately any loan, credit card or overdraft must be repaid. As with any borrowing, you should only take on what you can comfortably manage. Here is some general information about different ways you can borrow money:

Credit cards

When you apply for a credit card you are effectively taking out an unsecured loan. This amount is your credit limit. If you reach the limit on your card you must stop using it while you pay off the amount you owe.

To make sure you do not miss any payments, which may affect your credit rating, set up a Direct Debit for at least your minimum payment each month. This can be topped up with additional payments if you have the money. It will take longer to repay what you owe if you only make the minimum payment each month. If you’re having problems meeting even the minimum payment then make sure you contact your card provider as soon as possible.

Secured and unsecured loans

There are two types of personal loan: secured and unsecured:

• A secured loan, like a mortgage, is secured against something you own, your home for example. If you can't repay the loan the lender can sell your property.
• An unsecured loan doesn't need you to provide security against the money you borrow, but you must pay the money you owe.

With either type of loan you borrow a fixed amount of money and then pay it back with interest over a fixed period of time. Make sure you are aware of any early repayment charges or late payment charges. If you have problems meeting your monthly loan repayments contact your lender as soon as possible. You may find you can make things a bit easier for a while by:

• Extending the term of your loan to reduce your monthly payments.
• Taking a repayment holiday.
• Making cutbacks elsewhere if possible.

Overdrafts

An overdraft allows you to borrow money through your current account. It can be easy to think of your overdraft limit as your spending limit but it should only be used for emergencies or short term borrowing.

An arranged overdraft is an overdraft that your current account provider has approved for you, and you can borrow up to that limit. They will usually only charge you interest and/or fees if you actually use it and depending on the type of current account you have, the fees and any interest-free threshold aren't always the same.

Important

Different current accounts have their own interest rates and "interest free threshold". Make sure you understand these before you use or apply for an Arranged overdraft. Don't go over your overdraft limit if you haven't an Arranged Overdraft agreement.

Before applying for or using an arranged overdraft check:

• The monthly account fee, if you have a current account that charges one.
• The 'interest free threshold' if your current account has one.
• Arranged overdraft usage fees.
• The interest rate for an arranged overdraft used with your current account.

MoneyHelper tools and calculators

Try using some of these tools and calculators that are available to help you budget and save.

The MoneyHelper site from the Money and Pensions Service offers many useful tools that can assist you with managing your money more effectively such as:

• Budget planner
• Money health check
• Quick cash finder
• Debt test
• Christmas money planner
• Credit card calculator
• Mortgage calculator