You can’t borrow your way out of debt. Despite that, many people try, and dodgy dealers and loan sharks are there to egg you on.
Most people do still need to borrow money at some stage - but there’s a right and wrong way to go about it.
Don’t borrow from crooks
The Office of Fair Trading recently took action to stop Kevin Duke, also known as ‘Mr Superloan’, visiting customers’ homes to collect money.
The Sunderland-based doorstep lender was stripped of a consumer credit licence after lying about previous criminal convictions on his application.
In a separate case, the Trading Standards Institute revealed details about a man called Mike from Suffolk, who borrowed £250 from an illegal money lender when he was a teenager.
Mike was subjected to 17 years of harassment and abuse by the loan shark, to whom he paid tens of thousands of pounds. He lost his house, his job and was attacked in front of his children.
The lender is now in jail, but no doubt there are others ready and waiting to fill his slot.
With former inmates turning up on doorsteps to demand payment, and loan sharks prepared to dedicate over a decade to intimidation, it’s vital to highlight the message that there are better ways to borrow - even if you’re finances aren’t in great shape.
Debt advice
If you’re struggling with money this should really be your first port-of-call. It’s not weak to own up to your problems and there are professionals dishing out advice on a daily basis – so you’re not alone.
Advisers have heard it all before and won’t blink an eyelid if you’ve got a shoe-buying obsession, all your money went on horse racing or if you were scammed when you feel you should have known better.
You can seek help from the Consumer Credit Counselling Service, the National Debtline or pop into your nearest Citizens Advice Bureau. They can help you devise a plan for how to repay debt, negotiate with creditors and still afford to live.
[SPOTLIGHT]If you come across any dodgy lenders, you can report them in confidence to the government’s Stop Loan Sharks campaign by calling 0300 555 2222 or texting LOAN SHARK and your details to 60003.
Loans for people with bad credit
Amigo Loans offers anything between £500 and £5,000, with no credit checks, if a homeowner friend is willing to back you.
In other words, if you fail to pay the lender can chase your friend for the debt. You can read more about the lender in Amigo Loans and the dangers of being a guarantor.
But just because you have a poor credit history doesn’t mean you’re not good for the money, so for trustworthy people and trusting friends it could be an easy way to get your hands on a loan.
It’s not the cheapest rate going but people with poor credit won’t be eligible for the best deals and it may well be among the best for those without the finest of records. Compare loans but remember to apply for ones you’re likely to get.
Multiple applications for credit and consequent rejections will harm your credit rating further.
Finally, a Crisis Loan may be an option. You'll have to pay it back but you won't be charged any interest. These loans are designed to help you in the case of an emergency or disaster. Find out more on the Crisis Loan section of the Direct.gov website.
Super low-cost loans
If you have a good credit score there’s no reason to fall into the hands of an unscrupulous lender. Personal unsecured loan rates have fallen – with Sainsbury’s recently launching a best-buy, the Standard Nectar Cardholder Loan, at 5.8% for a £7,500 loan spread over three years.
Derbyshire Building Society and Tesco Bank offer the same deal for rates of 5.9% and 6% respectively. Check out Market-leading loan rates fall below 6%.
Your overdraft and credit card
Switching current accounts could lead to an interest-free overdraft; much cheaper than letting the shady guy who lives round the corner lend you a few bob.
You can get a £250 interest-free overdraft with First Direct’s 1st Account if you pay in at least £1,500 a month (otherwise the account costs £10 a month).
If you’re looking for a bigger loan, Santander’s 123 Current Account and Everyday Current Account offer an interest-free overdraft of up to £1,200 for four months, but bear in mind you might not be eligible for the full whack.
Applying for a new credit card - one offering 0% on purchases or balance transfers – could be another way to borrow on the cheap. Find out more by reading three ways to get an interest-free loan.
But the same rules apply as for a loan – match your credit rating with a card you’re likely to be accepted for.
Credit unions
Consider joining a local co-operative and borrow money from people in your community.
Credit unions are not-for-profit groups run by volunteers and are being revamped thanks to a £38 million cash injection from the Government.
You need to become a member and might have to save some money with the union first.
Although the rates won’t be the best on the market you can borrow smaller sums, which the banks wouldn’t bother lending at, with rates cheaper than expensive payday lenders.
More on borrowing:
Borrowing money from family and friends: how to do it right
The best ways to borrow £5,000
Market-leading loan rates fall below 6%