KIRSTY APP - Other Methods Of Borrowing

In addition to the ways of borrowing shown in the checklist, there are various other ways.

Personal loans from banks and building societies

These are agreed sums made available by a bank or building society, to be repaid over an agreed time. The means of repayment will be discussed, and security or collateral will sometimes (not often) be required. Usually the interest rate is fixed at the outset, which can help you budget.

Flexible loan accounts

These are offered by banks and are similar to many store cards. You agree to pay a fixed sum each month, and can borrow from the account (up to an agreed multiple of the monthly payment figure), paying appropriate interest. The interest rates on these accounts vary from time to time.

Bank overdraft

A bank overdraft is often worth asking for as an alternative to a personal loan or borrowing on a credit card. The traditional overdraft can limit payment of interest to the days in the month on which you are in overdraft, and the interest rate charged will be amongst the lowest available. Beware, though; you may have to pay bank charges for three months, even if the overdraft is only for a few days.

Credit unions

These offer an extremely cheap form of borrowing. You must be eligible to join an existing union or to be involved in setting one up. A credit union is a mutual self-help society, whose members must share commitment through a common bond - examples are living on a particular estate, working for the same company, and being members of a certain church or of a work association. Members are effectively their own bank; they can obtain low interest rates if the credit union members accept that they do not want dividends to cover their risks and outgoings - or are willing to forego the usual level of interest on their money when they lend it to the union.

The drawback is that the credit union depends on members' savings to fund the loans. To maintain low interest for borrowings, savings can only attract low interest, also the size of loans is usually limited. The advantage is that no security is normally required because members trust each other.

Finance house loans

These are replacing traditional hire purchase. The finance company simply lends you the money without any complications of itself owning the goods and having to reclaim them if you cannot keep up your payments. But the goods may still be forfeited if you do not keep up the payments.

BORROWING - Hire purchase, the famous never never!

This is always worth comparing with other forms of credit, because it may be cheaper (although sometimes it is more expensive). Your initial deposit and monthly instalments cover the cost of the goods and interest payments.

The disadvantage is that the goods are not yours until the final payment has been made, and they can be repossessed if you fail to keep up your instalments. You will need to see if you have to make arrangements to insure the goods.

Also, if you buy a car by hire purchase, you may be responsible for properly maintaining it and repairing it if there is an accident. In addition, of course, you cannot sell the goods until they have been fully paid for.

BORROWING tips

� Borrowing is easy, but it costs you money

� There are many pitfalls - look out for them.

� Set the costs (and disadvantages) of borrowing against the advantages of having the goods or services before you can pay for them.

� Shop around and choose the system that will suit you best for each type of borrowing.

� Ensure that credit arrangements are part of your personal financial plan so that problems do not creep up on you unexpectedly.


Next:

You And Your Tax

/wealth/borrowing/tax/index.html... see: You And Your Tax