What type of borrowing is best for me?

Money makes the world go around, so the song says. This is easy to believe when the money is in your pocket, but very hard when it’s out of reach. Anyone can struggle with finances sometimes. It could be that your child’s new passion for rugby means expensive kit, you have to make an unexpected trip to see sick relatives, or the car needs repairs.

Just as there are many reasons you might need money fast, there are many options to find money fast. But not all sources are as good as they sound. Doing some research on the best option for you is a sensible move. How much you need to borrow, and your personal credit history is also a consideration.

Friends and family

Turning to your friends or family in a time of need is very understandable. If they are happy to lend to you, and can get the money as quickly as you need it, then it can be a great way to borrow a small amount. Someone you know is unlikely to charge you interest and so this can be a good cheap way to get a loan.

There are unfortunately potential problems with borrowing from those you know. You need to ask yourself the following: How quickly will they want it back? What happens if you fall behind in your payments? What happens if their circumstances suddenly change and they need their cash returned sooner than you can afford?  The last thing you want is to have an uncomfortable issue coming between you and your loved ones.

Credit cards

Putting it on the plastic is a very easy thing to do. What could be simpler than just handing over your card when making purchases? Credit cards are certainly a very handy and no fuss way of borrowing money. You can also take money out of an ATM with a cash advance.

There are a few things to watch out for though with this type of borrowing. The amount you are charged varies hugely from lender to lender. In fact, some credit cards can be more than twice as expensive as others, and you may be charged a monthly or yearly fee.

The other problem with a credit card is that you might find yourself never actually paying off the original purchases, meaning the amount you owe steadily increases over time. As you are able to pay just the ‘minimum amount due’ each month, meaning the interest, you can soon find yourself saddled with a large debt that is worryingly hard to reduce. Having such easy access to money in your wallet also makes it easier to spend on things you don’t actually need.

Payday loan

A pay day loan is meant to be a short-term bridging loan between pay packets. It tops you up just before you get paid, with the idea being that you can settle the debt when payday comes. The theory of these loans is fine; short term cash loans for small sums.

Where pay day loans can go wrong is that these types of loans increase the amount you owe on a daily basis. If you miss payments, your balance owing increases rapidly, and what started as a small sum can end up very large. Out of the many ways you can get access to finance, Payday loans are probably the least desired option.

Personal loan

This type of loan gives you access to money typically from $200 – $20,000 or more, and if it’s unsecured, it isn’t tied to an asset like a car. Like Instant Finance, there are lots of personal loan providers in New Zealand, with different criteria for who they will lend to.

The great thing about a personal loan is that you have a set amount to re-pay, and as long as you stick to the schedule there are no nasty surprises. It also means you have the satisfaction of actually paying off the amount, and being debt free.

Whatever way you choose to get a loan, make sure you budget properly to keep your debt in check. Do your research; and be aware of all your options.