Borrowing small amounts of money can sometimes be trickier than taking out a large loan (like a mortgage). If you need to get your hands on a small amount of cash quickly, read through our guide to choose the best method.
1. Personal Loan
Many banks offer unsecured personal loans for between £500 – £35,000. You can apply and get a decision quickly, but you will need a decent credit score – especially if you want to borrow a larger amount.
Pros:
- Quick to apply and get a decision
- Can improve your credit score
- You pay it back monthly in regular instalments
Cons:
- Minimum amount is usually £500, or sometimes £1,000
- You don’t get the flexibility you would with a credit card or overdraft
- Can be expensive
- You will need a strong credit score
2. Overdraft
An approved overdraft lets you borrow exactly what you need and pay it back when it suits you. Many banks offer an interest-free buffer (for example up to £250), which is useful if you only need to borrow a small amount of money for a short period of time. Be careful though – on top of the standard interest rates, many banks have punishing fees for going over your approved limit.
Pros:
- Ultimate flexibility
- Quick & easy to apply for if you already have a bank account
- Some banks offer 0% for smaller amounts
Cons:
- You need a bank account
- Harsh fees & charges if you go over your limit
- If you’re not disciplined, you may struggle to pay it off
3. Credit Card
A credit card allows you to borrow exactly what you need by charging purchases to your card, which you then pay off at the end of the month. Some cards offer an interest-free period, making them one of the cheapest ways to borrow money – if you are organised and responsible with your money.
Pros:
- Flexibility to borrow only what you need
- 0% purchase cards available
- Quick & easy to apply
Cons:
- Once approved, you have to wait several days for your physical card to arrive in the post
- Interest (and compound interest) can get very expensive once you start paying it
- Can be tempting to spend beyond your means if you are not disciplined
- You will be charged for withdrawing cash from an ATM
Bonus option no. 4 – Friends & Family
If you have a friend or family member who trusts you and has money to spare, it may be worth borrowing from them rather than a bank. If this is possible, it may well be the cheapest option!
Pros:
- It’s very unlikely that you will have to pay interest
- No effect on your credit score
- No credit checks and more flexibility when deciding on the loan term
Cons:
- No contract or legal rights
- You will need a willing & able friend or family member
- Possible awkwardness of owing money to somebody you know
What about Payday Loans?
Payday loans usually come with enormous interest rates that can easily spiral out of control if you struggle to pay everything back on time. We would strongly advise against getting a payday loan unless it’s an absolute last resort.
If you are experiencing financial difficultly, there are charities and organisations that can help – you can find a list here.
