Here we look at small unsecured loans, credit cards and other options you might not have thought of for borrowing smaller amounts of money.
You may be able to get a small unsecured loan, but it will depend on just how small the amount you want to borrow is. Some lenders will give loans for as little as £250 or £500 but you may find this comes with a very high APR.
Other unsecured loan providers may have more competitive rates, but will not lend much less than £1000, so whether or not an unsecured loan is right for you depends on the amount you need to borrow and the loans available for that amount.
You will also need a good credit rating for these small unsecured loans as the risk to the lender is greater than with a secured loan.
A payday loan might seem like the ideal small loan – they let you borrow between £50 and £1,000 for a few days or weeks until you next get paid.
However, payday loan companies typically charge up to £30 for every £100 you borrow for up to 31 days, which might not sound that bad, but actually equates to 2,255% APR. As of 02 January 2015 the Financial Conduct Authority has capped the interest on payday loans at 0.8% per day.
Payday loans should only be used for emergency cash for a very short period if you have no other options – so it’s probably best to look elsewhere for your small loan.
Using a credit card to get a small loan can be very cost effective if you choose your card wisely. There are plenty of credit cards on the market offering 0% on purchases and if you can pay off whatever you borrow within the interest-free period, your small loan won’t cost you anything.
Remember, the 0% rate only applies on purchases – if you withdraw cash on your credit card for example, you’ll pay a higher rate of interest.
Alternatively, if you can’t pay off your balance in the period, you could transfer your balance to a 0% balance transfer card – you’ll have to pay a balance transfer fee, but your small loan will be interest free for longer.
Another option for getting a small loan from a credit card is a money transfer. Some credit cards offer interest-free money transfers into your current account. You pay a handling fee, but this could still be a very cost effective way of getting a small loan.
Some current accounts come with overdrafts that can be used to provide you with a good value small loan. Some are even interest free for a few months, or even as long as a year.