Borrowing Money
10 May, 2023If you are unable cover your costs by budgeting, or saving, you might consider borrowing money. In this article we introduce some of the common forms of credit and explain the benefits and drawbacks of each.
Our loans:
As we’re sure you know already, at PCU we have competitively low interest rates and we put our members first. We don’t charge early repayment fees and, if you’re struggling to repay, we always do our best to find a solution. You can use our loans for a new car, upgrading your kitchen, treating yourself to a summer holiday, or even a wedding. You can find out more here if you’re new to our loans, or apply for a loan here.
Sometimes a person might take out a loan from PCU even though they have savings because it means their savings are still safe in their account and protected by our free life insurance.
Other lenders:
There are many other lenders out there but most want to make maximum profit from you, even banks. This means they are often quite expensive.
It’s important to be careful when committing to repayments. Make sure you are realistic about what you can afford to repay and that you trust the lender not to exploit you.
Please do not use loan sharks or payday lenders. This is an extremely expensive way to borrow and can easily spiral out of control. There are many other safer options out there, such as borrowing from a credit union.
If you think you have borrowed from a loan shark, you can find advice from Citizens Advice here. They also provide information about payday lenders here.
Credit cards:
A credit card is also an option. It can be handy for smaller amounts of money as, once you have set it up, you can use it very conveniently. Some people use their credit card even if they already have the money for a purchase because regularly paying off your credit card on time can boost your credit score. You are also protected by Section 75, so the credit card provider is jointly liable for purchases between £100 and £30,000. This means that if your purchase does not arrive, or arrives damaged, you can get the money back. However, providers will carry out a hard credit check which may negatively affect your credit score. Interest rates are also usually much higher than credit union loans, so for a larger loan amount it is better to go with your local credit union.
Buy Now Pay Later (BNPL):
BNPL is a form of credit which pops up at online or in person checkouts. It can be a useful way to spread the cost of more expensive or emergency purchases. It is usually interest free so long as you keep to repayment schedule. Repayments are either several payments on a weekly/monthly schedule, or one full payment at a later date.
BNPL companies are usually separate from the company you are buying from. Common providers you may have already seen are Klarna, Clearpay, and Laybuy. There are many different BNPL companies and their agreements may vary, so it’s always a good idea to make sure you understand the terms of your contract with them before committing.
Downsides of BNPL:
- They are not regulated by the Financial Conduct Authority or covered by Section 75, which can make it difficult to seek help if things go wrong.
- Using BNPL can negatively affect your credit score if they choose to perform a hard credit check, or if you fail to meet your repayment schedule. They also may not perform affordability checks, meaning you could borrow money that you can’t reasonably repay.
- If you fall behind on payments you could be charged a fee or your details may be passed on to a debt collection agency.
Consequently, it is even more important than usual to be sure that you can keep up with repayments before you commit, keep on track of when your repayments are, and always read the terms and conditions. It often only takes a few clicks to commit, so it’s easy not to think carefully enough.
Although credit union loans might seem less convenient, they are much safer because we care about our members. We are also a better option because our interest rates are low and do not increase if repayments are missed. You’ll be in much safer hands if you take the time to get a loan from your local credit union instead.
You can find out more about BNPL on the Money Helper website here, or compare different providers on Which’s website here.
Problem Debt:
If you are worried about paying back your loan, it’s a good idea to contact the lender as soon as possible. They may be willing to work with you to find a solution. Here at PCU, we can freeze interest or draw up a new repayment schedule if you are struggling to meet payments.
There are also debt charities who offer support such as StepChange, MoneyHelper, Citizens Advice, and National Debtline.
TL;DR:
There are many different ways to borrow. Borrowing money can be a helpful solution but it’s important to understand your situation and what the options are. Most credit providers are expensive because they are making a profit from you. Credit unions put our members first, so our interest rates are usually lower, and we will work with you to find a solution if you are struggling to pay. Whatever method you choose, make sure you’re informed and understand what you’re agreeing to when you commit.
