Best ways to borrow a small amount of money

Different ways to borrow money

Whether you need to cover the cost of repairing your boiler or want to take advantage of a great deal on next year’s holiday, the most popular ways to borrow a small amount of money include personal loans, credit cards, and current account overdrafts:

Personal loans

You can take out personal loans for as little as £1,000 (and sometimes even £500). This type of borrowing offers speedy access to the cash you need in return for regular monthly repayments over the course of a year or more. But beware – interest rates are often higher for small amounts, particularly if you have an imperfect credit record.

Pros

• Can be arranged quickly – you can often have the cash within a couple of days

• Come with fixed monthly repayments that can help with budgeting

• Can be a cheap option if you have a good credit score

Cons

• May not be available for amounts below £1,000

• Interest rates tend to be higher for small amounts

• May involve extra fees – such as early repayment charges – that can make small loans more expensive

Credit cards

A credit card can be a great way to borrow a small amount of money, especially if you can qualify for a card offering 0% on purchases, which can help spread the cost of a big outlay, or one offering 0% on balance transfers if your aim is to consolidate and pay off your existing debts.

Pros

• Can offer a cheap – or even free – way to spread the cost of a big purchase

• Could improve your credit score when used responsibly

• Can make it cheaper and easier to pay off your debts

Cons

• 0% deals only last for a pre-determined period – after that, the interest rate will shoot up

• They can encourage further borrowing if not managed carefully

• Penalty fees may apply if you go over your credit limit or miss a (minimum) payment

Overdrafts

You may find an arranged overdraft facility on your current account the simplest way to borrow a small amount of money. However, the high cost involved means overdrafts are only suitable for very short-term borrowing.

Pros

• Offer quick and easy access to emergency cash

• May offer interest-free borrowing for small amounts (over a limited period)

• Are easy to set up if you have a current account

Cons

• Generally charge very high interest rates of 30% plus

• Only offer access to limited funds - e.g. up to £1,000 (depending on your bank)

• Charge you even more if you exceed your arranged overdraft limit

Other ways to borrow a small amount

Alternative options worth considering when looking to borrow a small amount include:

• Asking family or friends for a short-term loan

• Checking out the deals available via peer-to-peer lenders 

• Taking out a specialist debt consolidation loan (if paying off debt is your goal)

You should avoid these borrowing options:

• Payday loans, which tend to be very expensive, even over a short term

• Secured loans, which are designed for people looking to borrow larger amounts

How to compare low-interest loans

It’s quick and easy to compare loans using the Uswitch personal loans comparison service. 

Just tell us how much you want to borrow and over what term, plus a bit about you and your finances, and we'll check your eligibility for our top deals and provide a list of the best ones you’re likely to qualify for – all without affecting your credit score.

Read more…

• How to get lower loan rates

• What to do if your loan application is refused