Borrowing money, only if you really need to

Before undertaking any commitment to borrowing money in your life after divorce you must be realistic about how you will manage repayments.  If interest rates increase or you lose your job you may find yourself in difficulties.

It is a rare person who does not have to borrow money at some point.  With interest rates at their lowest since the beginning of time now should a good moment if only the banks would lend all the money they have been given.  There are different ways of borrowing to suit people in varying circumstances. 
 
Overdraft Money coins and notes
An overdraft arrangement on your current account is probably the best option if you find that you have a short term cashflow problem in your life after divorce.  An overdraft is a more flexible way to borrow than a loan as it can be repaid when it suits you with no penalties apart from any interest due.

Secured loan and further advance
The commonest form of secured loan is known as a further advance and is usually made against your home. However, because they are less of a risk to the lender they usually come with a lower interest rate than on an unsecured loan.

Remember that if you do not keep up payments on a loan secured upon your home it may be repossessed.

Unsecured loan
Interest rates for unsecured loans tend to be higher as the lender is taking a bigger risk. Payments are usually over an arranged period and you may be penalised if you want to repay it earlier than agreed. Less flexible than a secured loan but suitable if you want a short-term loan over a period of one to five years.

Short term or Pay Day loans
This is certainly not a good way to borrow money, in fact it never should be done.  These companies usually lend to people who cannot get credit anywhere else.  Their interest rates are are beyond excessive and if you fall behind with the payments they make Mafia enforcers look like your favourite uncle.  If you are thinking of doing this, seek help with your financial situation.   

Loan from a credit union
A credit union is a mutual financial organisation, owned and run by their members for the benefit of those members. Before you will be allowed to borrow money from the union you have to show that you are a reliable saver and you can only borrow as much as you can afford to repay.

Store cards dreamstime_601883.jpg
Store cards can only be used in the store or group of stores that issues them and interest rates can be exorbitant.  Using them may entitle you to special offers that are not available to other customers and is one of the ways of tempting you to sign up.

Be wary before you go ahead as they are only worth using if you pay them off at the end of every month so that you do not end up paying huge amounts of interest.

Hire purchase
Now all but disappeared but it was often easier to get credit from a hire purchase company than from a bank or credit card company but it is also usually a more expensive way to borrow.  A hire purchase agreement means that you make payments on a monthly basis for goods but you do not own until all payments are made and the HP company can take goods back if you default.

Interest free credit
This is the buy now, pay later way of buying on credit.  However if you don’t make payment in full by the due date you will end up paying interest on the whole amount.  Companies offering this type of credit rely on the fact that most people will not pay off the debt in time and make a huge profit on the interest they charge.

 

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