Most people think that loans are the best way to get money when they want to borrow some. Even though loans are often a good way to borrow money, they are not very flexible. If you want to pay back your loan early, you may have to pay a lot of money. But if you want to borrow money, there are other ways besides loans:
Overdrafts
An overdraft is one of the least expensive ways to borrow money, especially if you only need the money for a short time. Your bank can agree to let you use more money than you have in your account, but you will have to pay interest on it. If you agree to an overdraft, you can use this money as a line of credit that you can use at any time. Some banks even off interest free overdrafts. But you shouldn't use overdrafts as a long-term way to borrow money, and the amount you can usually borrow isn't very high.
Charge cards
Credit cards are one of the most common ways to avoid taking out a loan, and they can be a good way to get extra cash when you need it. If you can get the amount of credit you need and pay off the bill quickly, you will pay little or no interest. But the biggest problem with credit cards is that they usually have higher interest rates than loans, and it's possible to get too many of them. If you stay away from these risks, using a credit card instead of a loan can work well.
Mortgages
Mortgages may be the best way to borrow big amounts of money over a long time. You can add credit to your mortgage by borrowing against the value of your home and adding that amount to your monthly payments. The interest rate on a mortgage is low, and the payments are spread out over a long period of time, making the payments seem smaller. But because you are paying it back over a long time, the interest can still add up, and it will take you a long time to pay it back.
Buy on credit
Hire purchase is a good option if you need to borrow money to buy a car or expensive electronics. During the sale, car dealers often offer this way to borrow money. In hire purchase, you give the provider a down payment and then make monthly payments. When all of these payments are made, you will own the item.
This is a good way to buy a car because the interest is usually lower than with a normal loan, and it's easy because the seller gives you the credit. But it's called a "hire purchase" because you don't own the item until you've paid for it in full, and if you don't pay, the item can be taken away.
Which is best?
It can be hard to decide which of these loan alternatives is best for you. To help you decide, you should think about why you want to borrow money, how long you want to take to pay it back, and your overall financial situation. If you look at all of your credit options, you'll find the best one for your needs.
