‘Never a borrower nor a lender be' may have been wise words in the 15th century, but Shakespeare's advice just doesn't cut it in the modern age.
Access to credit is part of our day-to-day lives and we wouldn't be able to buy our homes, cars or live in the way we prefer without being able to borrow.
Of course, saving up for the things we want is still very smart and it's vital to have sensible borrowing limits, but sometimes being clever with credit can be a useful option.
But what type of borrowing suits what type of purchase?
£100 on the overdraft
If it's the end of the month and you need to make a family shop or pay a bill, but don't have the cash to cover it, an overdraft could be ideal.
Many of us go into the red now and again, often before payday, and overdrafts can prove a simple and efficient way of borrowing money, especially when you know that your regular income will soon see you back into the black.
If course, if you spend most of the month in the red you should consider other forms of credit combined with limiting your spending. But for small, necessary purchases, dipping into your overdraft facility is an easy way to borrow.
Pros: Easy, and usually repaid quickly
Cons: Rates can be high compared to other borrowing, and it's easy to slip further into the red.
Credit card for £1,000
Some purchases are significant without being massive. An annual holiday or vital car repair work can cost hundreds of pounds, and we don't always have the money to hand.
This sort of purchase might push you beyond your overdraft limit but a
credit card could be ideal. Easy and quick to use and accepted by most retailers, credit cards allow us to borrow in a very straightforward way.
There are many types of credit cards with different benefits - 0% interest on purchases or balance transfers; lifetime balance transfer rates; cashback or loyalty cards; and even fixed rate credit cards. Your choice is vast and the sector very competitive.
Pros: Large choice to suit different borrowers, interest-free options, straightforward to use
Cons: High ‘revert to' rates after initial interest-free periods. Often have complex fees and charging structures.
Loan vs credit card for £5,000
What if you need to borrow a large sum of money for a longer period of time? For example you may need to decorate your house or fund a wedding.
A standard unsecured personal loan is the simplest option, where you agree your borrowing level and term and are charged either a fixed or variable rate of interest. They are widely accessible and quick and easy to arrange. Current best buys charge interest at around 8%.
Or you could make a purchase on your current credit card and then switch to a ‘lifetime balance transfer credit card' which charges you a set rate of interest on balances transferred until they are repaid, no matter how long that takes. Interest rates are competitive at around 7% upwards, but if you use your card for anything else, such as a new purchase, you could incur higher interest charges.
Pros: A lifetime balance credit card can be cheap, and a personal loan is very quick, easy and straightforward
Cons: A lifetime balance credit card can be expensive if used for other purchases.
Secured loans and remortgages - £10,000+
If you need a new extension or a new family car, a credit card or loan just might not be enough.
But if you are a homeowner you have the option of a secured loan, remortgaging to release equity or taking a further advance (where you keep your current mortgage deal but increase your borrowing to release some of the equity in your home). In the current environment you will only be able to take these options if you have a significant amount of equity in your property.
All of these types of borrowing involve securing your borrowing against your property, either with your existing mortgage lender, or with a new lender in the case of a secured loan. Be aware that this means you could face repossession if you do not keep up repayments on either your mortgage or the secured loan. In other words you are risking the roof over your head. No problem if you can afford the repayments - but a big problem if you can't.
If you remortgage or take a further advance you will pay a mortgage rate for the extra borrowing, which is usually lower than other forms of credit. Secured loan rates are often cheap too. But you may end up repaying the debt over a much longer period and therefore the overall amount you repay might be higher.
Pros: Cheap rates of interest
Cons: Home secured against your borrowing, plus the long repayment term could mean you pay back more overall.
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Find out more about
borrowing money at http://www.confused.com/credit-cards
