Many people live from month to month and must rely on their wages to meet the cost of living expenses without the back-up of savings. Even people who manage their money really well can find themselves short of funds if the unexpected happens and have to borrow money. It could be something relatively cheap like a small household repair, or it could be a major expense like a replacement car. If you’re one of those people who might need a loan in the event of an unexpected bill, there are a few ways you can raise the money you need:
Advance on your wages
In an emergency, you may be able to ask your employer for an advance on your wages. For some companies, this is never a problem, but for others, you may need to demonstrate that it is for a genuine reason and it is for something unexpected.
If you can obtain an advance, it will usually be interest-free. Some employers will lend you what you need as a loan from the company and allow you to make monthly payments over a reasonable period of time. Others though may ask you to pay it off immediately, which will leave you short of money the following month. It also means that you can’t borrow more than you earn in a month.
If you receive benefits such as income support, pension credit, jobseekers allowance, child credit or income-related employment support and have done so for 6 months or more, you may be able to get a budgeting loan.
It is interest-free and you can pay it back over a period of up to two years. The amount you can borrow depends on your circumstances, but the minimum amount is £100 and the maximum is £812. The repayments are taken out of your weekly or monthly benefits and they can be as low as £2.90 and as high as £55.12.
You can apply online, by post or through your nearest Jobcentre Plus. If you want to read more about Budgeting Loans, visit the governments website.
Going into overdraft with your bank without authorisation can be very expensive. It is much better to ask for an authorised overdraft to keep for emergencies. Different banks have different charges, so ask your bank how much you’ll be expected to pay before you withdraw any money.
Some banks charge a fixed interest fee on the amount of money of money you owe, while other banks make a daily charge, which could be anything from 50p to £3.00 a day. Overdrafts are normally an expensive way of borrowing and best used only if you can afford to pay back the money quickly, to avoid excessive charges. On the other hand, if you need time to pay off your debt, it would be best to think about using another method of borrowing money.
Friends and family
While it is not ideal, friends and family will often offer to lend money. This is fine if you are able to repay the loan within a fairly short period of time. However, if something goes wrong and you are not able to pay the money back, you do risk upsetting family and maybe losing a friend.
If you do get into difficulty, it is best to ask the person who lent you the money for more time to pay at a lower figure. Try to pay something every week, rather than nothing at all and letting the debt go unpaid.
If you need a substantial amount of money, for instance, to replace a car, then you might be better off asking a bank or other financial institution for a personal loan. Banks usually offer the best rates, but they can be more difficult to obtain. A personal loan company, on the other hand, may lend you the money more easily, but you will pay a higher rate of interest.
Depending on the size of the loan, you will probably have between 12 months and 4 years to pay it back. You will pay more interest on a loan over 4 years than you will with a loan over 1 or 2 years.
Credit cards can be a very expensive way of borrowing money, especially if you only pay the minimum payment. The trick is to pay it off as fast as you can. If you have a good credit rating, you might be able to transfer the debt onto another credit card with no interest for a specific amount of time (normally about a year). This means if you manage to pay off the debt in 12 months, you won’t have paid any interest.
Credit unions don’t make a profit. They are set up to help members of a community get loans. You need to be a member of the credit union and you can also save as well as borrow. Some credit unions are quite small and other are large enough to offer their services online.
The advantage of using a credit union to borrow money is that their interest rates are lower than other financial institutions and you can borrow small amounts, which sometimes isn’t possible through a bank. The Association of British Credit Unions can even lend you money to start your own business.
You have to be a member to be eligible to borrow from a credit union. To become a member, you have to be either living in a certain area, working in a particular trade or be a member of a trade union, a church or an association.
If none of the above options are available to you, a payday loan is a simple way to get hold of smaller amounts of money. The quicker you pay the loan back, the less interest you pay. They are sometimes cheaper to use than an unauthorised overdraft. They can also be useful if you need to replace a household item quickly, such as a freezer or a washing machine and you need time to organise a withdrawal of savings or for your next pay day. You can apply for a payday loan online and you’ll usually get a reply within the hour.