However good we are at budgeting and saving money, at some point in our lives, we are likely to need to borrow some extra cash to cover expenses or to make a big purchase. But with so many options for borrowing money, it can be difficult to know which one is best for you.
In this article, we cover various situations and the best lending options available for each.
Large Amount + Long Term
On occasion, we will want to borrow a large amount of cash for any number of reasons. These may include making home improvements, taking a holiday of a lifetime, paying for a wedding to purchasing a new car.
When you need to take out a significant sum, likely, you will also want to pay that money back over a longer period, making each payment realistic and affordable.
A good option in this situation is taking out a personal loan. These loans can vary widely in their size based on many factors such as the lender and your credit history. Most bank loans range from about 1K to 25K.
Interest rates on these loans vary based on market trends, but generally span from around 2% up to 25%. The term of your repayment can also vary, but these types of loans will often span 1 to 5 years in length, meaning getting a competitive interest rate will pay dividends.
Small to Medium Amount + Medium Term
Getting a bank loan can be a lot of hassle, which isn’t ideal when you just need to borrow a small to medium amount of cash. In this situation, taking out a credit card may be the best option for you.
Interest rates on credit cards are typically higher than on personal loans, usually in the 15% to 25% range. That is why this option is more suitable if you are looking to borrow a smaller amount of money on a medium-term basis. If your credit score is very good, it is possible to get a credit card with a 0% rate for a limited time. This can be very beneficial if you can pay off the card in the allotted time.
Credit cards can be used for small to medium-sized purchases such as second-hand cars or smaller home improvements.
Small Amount + Short Term
If you need to borrow cash for a short period, and need an amount ranging from about 100 to 3K, a short term loan may be the best option for you. This type of loan is typically incredibly quick to apply for and due to the small amount of cash lent is usually achievable even if you have a poor or limited credit history.
Short term loans can have relatively high-interest rates, but due to the small nature of these loans, they can still work out as reasonable compared to other options when used over a short term. However, you must make sure that you can meet all the payback requirements, otherwise, you may find yourself paying back much more than you need.
Short term loans are a great option when you have an immediate and unforeseen requirement as the cash can be in your account in less than an hour.
Which borrowing option is right for you depends a lot on how much you want to borrow and how long you want to borrow it for. This article will help you understand the trade-off in cost, speed and accessibility of borrowing when compared to your situation.
