Unsecured vs secured loans
Are there any alternatives?
If you are only looking to borrow a small amount,
say a few thousand pounds, a credit card could be a good option. There are a number
of deals offering interest free periods on balance transfers and purchases, making borrowing
on a credit card potentially cheaper than a loan. It is worth noting however, that most providers
charge a balance transfer fee, typically between 2% and 3%, if you move a debt over from another card.
Sorted finances make happy families
If borrowing on credit cards, you should also be careful about using the
card for different purposes. Most card providers apply a repayment order,
whereby the cheapest debt is cleared first. So, unless you opt for a card that
offers an interest-free period on both purchases and balance transfers for the
same length of time, you should not use your credit card for both spending and a debt transfer.
If you are a homeowner and are looking to borrow more
than a couple of thousand pounds, another option is to remortgage and
release some of the equity from your house.
The fact that mortgage rates are
generally lower than loan rates has made this a popular choice in the past, but there are
disadvantages: Not least of these is the cost involved in increasing your mortgage
or changing your mortgage provider. This now averages out at about £1,100,
while some people pay up to £2,000 to make the switch.
There are a number of deals offering interest free periods on balance transfers
and purchases, making borrowing on a credit card potentially cheaper than a loan
Secured loans are also likely to work out cheaper than
remortgaging for homeowners who face stiff penalties to exit short-term, low-rate deals.
If, for example, you are three years into a five-year deal, you could have to pay 10% or
more of the total amount borrowed – or £20,000 on a £200,000 property – to change the terms of your mortgage.
Mortgage lenders are also tightening their belts
in the wake of the credit crunch, meaning that low-cost remortgage deals are becoming much harder to find.
If you are a homeowner and are looking to borrow more than a
couple of thousand pounds, another option is to remortgage
