Money lenders can help people out of tricky financial situations, with credit designed to cover critical costs, which otherwise would be a struggle to afford.
Very often, credit will be offered in the form of a loan, with personal loans among the most common type.
Typically, a loan is a borrowed sum of money that gains interest over time. Recipients are expected to pay it back in full, over a set period.
Are loans, however, the most flexible form of credit? Let’s explore the other options to gain a clearer idea.
Technically, credit cards are a type of loan as borrowers must follow a monthly repayment schedule. However, there are key differences between the two.
Loans usually come with a fixed debt. Their users receive a set amount of funds up front. This is useful if people need a large sum of money, fast.
Credit cards, on the other hand, offer credit usage across a longer period of time. This can help people who don’t receive their salary until after vital bills are due, for example. With a credit card, they’re able to meet crucial payments on time.
So long as credit is fully paid back, credit card users stand to reap big rewards — the main one being an enhanced credit score.
Overdrafts allow users to exceed the available funds in their current account. A lot of the time, holders must arrange an overdraft with their bank. However, some services issue this feature automatically.
Overdrafts almost always incur additional fees; most also charge interest. The price of each tends to vary between banks. Fees are regularly added — this could be daily, weekly or monthly. Interest is usually set at 15 – 20% for the period during which you’re overdrawn.
Overdrafts deliver a useful short-term payment solution, but users will benefit from shrewd financial management.
Credit unions deliver an alternative to banks. Essentially, they are community-based. Unlike banks, they are led by their own members. Like all financial services, they are monitored by the Financial Conduct Authority (FCA).
Members in this kind of organisation are connected in some way, either through work, industry, or where they live.
To access credit, prospective borrowers must prove that they are able to repay funds on time. Credit unions aim to help users improve their financial situation, so they try to deter users from spending beyond their means. That’s why they tend to offer loans at lower rates.
Though they can be helpful sources, credit unions aren’t open to everyone.
Money lenders offer a useful solution to personal money problems. With any credit form, borrowers can meet high-priority payments, and as long as they pay debts back in time, they may boost their credit score, too.
Financial management is important for everyone. Keep track of your finances, and you are securing your way to a stable future.