Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

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What Borrowing Options do I Have?

Types of Credit

There are a wide array of credit and loan types to choose from to suit your borrowing needs. But a key question you should as is “What is right for my situation?”.


Regardless of the type of borrowing, every loan type is regulated and monitored to prevent unsavory practices such as excessive interest rates and obscure practices, although competition in the sector is more likely to keep this in check anyway, and often loan regulation actually had an adverse affect on your options.



Factors to Consider

At a high level, we can break lending types down into two distinct areas. These are Open Ended and Closed credit types. Open ended is where you can borrow when it suits you or repay over a flexible time. A credit card would be a good example of open ended borrowing. There's no set repayment time or repayment amount. A fixed term unsecured loan would be a good example of closed borrowing, because you have to repay a specific amount each month over a specific term. Open ended credit is also known as revolving credit, due to it's cyclical nature, and can be used repeatedly

With either type of credit, there are a number of important factors to consider. The first is the interest rate. The ideal scenario is to borrow the least amount of money you require at the lowest rate possible. However, this is not always possible. Generally the lower the interest rate on a particular product, the cleaner your credit history needs to be. If you're looking to borrow an unsecured loan or get a credit card at the lowest rate on the market, then your credit history will need to be as clean as a whistle for you to succeed. Other factors such as the time you've been employed and your annual salary will also factor into a “score” to determine whether you are eligible for a product.


This is all well and good you may say, because you can simply apply for each product, starting with the lowest rates and working your way up until you're successful. Unfortunately, it's not always that simple. Every time you make an application for finance, it is recorded on your credit record. Too many applications in a short space of time can put potential lenders off lending you money. Why? Well, because they may not know whether you've been successful or not with that lender, they can't tell whether you're just gonna rack up loads of debt and then scarper with the money. Better safe than sorry.


So, you need to find a credit option which reflects your credit profile. You can do this by taking a look at your own credit profile, or by using a broker who can match your requirements to a lender.


Credit card or Loan?


That still leaves the conundrum of whether to apply for a credit card or a loan. The answer to that question is completely down to your requirements. If you need a specific amount of money, perhaps to buy a car, then you may be better off with a fixed term loan, with fixed repayments. That way you know exactly how much you're borrowing, how long it will take to repay and how much you will need to put aside each month.


If you need a solution for extra emergency cash, or perhaps you want to go and buy yourself some new clothes, but aren't sure how much you'll need. Then a credit card may suit better. You can use the card as and when you need it. It's always on hand, and you can spend a specific amount, rather than borrowing more than you need to with a fixed loan.

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