Should you take out a loan or a credit card when you need finance?

There are many reasons why you might need to access finance immediately. It could be a household emergency such as a roof issue or a broken boiler, your car could have failed its MOT, or you might want to consolidate debt, so what are the options?

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In the past a credit card might have been your first thought, but currently bank loans are available at historically low rates of APR.

Adviser

Depending on how much you need to borrow, it may be time to think about talking to an independent financial adviser (IFA) who is regulated by the Financial Conduct Authority – check their register online.

Your advisor will probably be using software for IFAs which are available from sites such as software for IFAs, which will enable them to make the best decisions to help you out.

Currently, loans in excess of £5,000 carry some of the lowest APR for many years. For smaller amounts deals are available, but often rates will be as much as three times higher.
Whether you can borrow will depend upon your credit rating and your ability to pay back the amount borrowed. A loan will be suitable for a significant borrowing level, which you will be able to pay back over time. If your own bank is unable to help, an adviser using software for IFAs will be able to search for other lenders who may be able to meet your needs.

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Security

The advantage of a loan from an institution is that you will have a fixed repayment schedule which you will be comfortable meeting and avoid any missed repayments. The interest rate will also be fixed for the term of the loan and you will be able to budget with confidence.

You may be required to provide security for the loan and charged fees if you wish to pay the loan off within the period you have negotiated.

A credit card offers free borrowing if you settle the full amount outstanding on the account within the monthly accounting period, which is attractive if this really is a stop-gap crisis. Once you begin to make reduced payments the interest rates applied to the balance can be huge compared with your alternative loan agreement. Also, withdrawing cash on a credit card can be expensive.

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