This post was provided by Amanda Fenton
At some point in your life, you are likely to find yourself in a situation where you’ll have to borrow money, whether it’s to tide you over during an emergency or a lean period, or to fund a special event of some kind. The reasons for people wanting to borrow money are many and varied, though. Likewise, the avenues for borrowing money are numerous, too.
It’s important to remember that whichever route you choose, you should know how to borrow sensibly and how to avoid the pitfalls of borrowing, which could lead you into debilitating debt. Always bear this in mind, whether you’re borrowing from the bank, taking out a hire purchase or taking out a payday loan.
Overdrafts from your bank
If you were thinking of borrowing money from your bank, your first option would be to take out an overdraft. This is when you ask your bank to agree to an arrangement that allows you to take out more money than is actually in your account. This is known as an ‘authorised overdraft’ and it can be for a fixed amount over a set period of time, with an outlined repayment period. On the other hand, you could be given a limit on an ongoing basis to use at your convenience.
Overdrafts from your bank are best used when your account is nearly empty – usually at the end of each month, shortly before your payday. Authorised overdrafts can help you avoid larger fees if you slip into the red. Never get involved in an unauthorised overdraft, as these incur high charges.
Hire Purchase/Conditional Sale Agreement
If you need to purchase an item you can’t afford, you can sometimes enter a hire purchase or conditional sale agreement. This is when you do not own said goods until you have paid in full, usually through monthly increments. Essentially, you hire the goods and pay the agreed amount in installments.
While you pay the installments, you are not allowed to sell or dispose of the goods without the lender’s permission or approval. Doing so would constitute a criminal offence.
Payday Loan
If you’re in a pinch, and require fast cash to cover an emergency situation and your bank can’t or won’t help you, you should think about taking out a payday loan. The lender must determine that you have a regular source of income and that you’ll be able to pay off the loan when your next payday comes around.
You will be instructed how and when to return the money, which will usually be on your payday or shortly thereafter. You may incur fees for late payment, so ensure you read all the terms and conditions carefully.
Borrowing money is a last resort, but you should always remember that if the bank won’t help and you are in dire need, there are always other options and ways around the problem. Just be sure you know what you’re signing up for.
