There's a bewildering array of providers offering us money nowadays. But if we need to get some money quick, which way should we turn?
Even the briefest glance at most credit card or loan comparison sites will tell you that many companies are falling over themselves to give us their money – as long as they’re fairly sure that we’ll pay them back, with interest on top.
But what should you do if you suddenly need to get a lot of money, and get it quickly? Imagine you’ve lost your job and need to pay some bills at the end of the month. Or perhaps you got home and found an unexpected bill on the doorstep.
What should you do?
Well, you’ve got several options, some good and some bad. First of all, let’s look at some deals that lovemoney.com definitely wouldn’t recommend!
Payday loans
These are loans that can get large sums of cash to you within hours. There’s generally a minimum of checks on you, so you don’t normally need to worry if you have a chequered credit history. But you will be hit by some very high interest rates as a result.
Take one payday loan site called QuickQuid. As a new customer, you can get up to £1,000, which you can repay over either 30 or 60 days. Unusually, they do look at your credit history, and then put you in a category of average, good or excellent.
If you are put in the average tier, then you would have to pay a charge of £295 on a £1,000 loan to be paid back over 30 days. The APR you would pay 2,222.46%. This is scarily high, even if you are paying it over a month, rather than a year.
Here at lovemoney.com, we think payday loans are devils in disguise. Avoid them like the plague!
Loan sharks
Never go anywhere near these! Loan sharks normally work on the street without a license from the Office of Fair Trading, and demand extortionate rates of interest. They often employ threats and violence to get their money. Steer well clear.
Withdrawing cash on your credit card
Serena Cowdy looks at the perils of withdrawing cash with your credit card
Never, ever, ever withdraw cash using your credit card. You'll be charged interest from the day you take the cash out of the machine (unlike with purchases on the card, where you get 56 days' grace before the interest rate kicks in). Even worse, the rate of interest you'll be charged can often be as much as 10 percentage points more than you'd normally pay. Ouch!
Overdrafts
As Jane Baker points out in Overdrafts are more expensive than payday loans!, you can pay huge amounts of interest if you end up going overdrawn with various high street banks - especially if you go over your authorised overdraft limit by mistake.
That's why, if you are in need of quick cash, you should probably avoid going into your overdraft, unless you have already arranged an overdraft deal with the bank. And if you're constantly in your overdraft, switch your current account to one that doesn't charge you interest. For example, Santander's Preferred Overdraft Rate account offers an interest-free overdraft for a year, while the Halifax Reward account provides an interest free overdraft up to £300.
A loan from the bank
Boring, but safe, loans should be available to you unless you have had any serious problems with your credit record.
You probably won’t get the cash as soon as a payday loan. It’ll be with you in a few days, rather than a few hours, but if you can afford to wait, it’s worth it as the rates are far more reasonable, and you can generally borrow much more.
Just be aware that banks don't particularly like lending out small amounts. So they offer the most competitive rates to borrowers who need to borrow £7,500 or more. If you need to borrow this much, the market-leaders are Alliance & Leicester and its parent Santander, which charge a typical APR of just 7.6%.
John Fitzsimons looks at the crucial things to remember before you apply for a loan
Unfortunately, if you only need a loan of £1,000, the APR is going to be significantly higher - the best value option I could find was the Sainsbury’s Finance Nectar Cardholder Personal Loan, which offers an APR of 18.6%.
This is similar to the rate you'd pay on an authorised overdraft, but with less flexibility because you have to make set repayments each month.
The answer to this is not to borrow more money to get a lower rate. That will cost you far more in the long run. And don't think you can borrow more to get a low rate, then immediately pay it back. Most loans will have early repayment penalties attached to them to ensure this isn't worth your while.
Instead, it's simply best to avoid taking out a loan from the bank if you only need to borrow a small sum. Switch current accounts and opt for an interest-free overdraft instead.
Or use a credit card. Which brings me nicely on to my next point...
Money transfers
Another way to get your hands on lots of cash quickly is to do a money transfer using a credit card.
With a money transfer, the credit card provider allows you to move money from your credit card to your current account. So for example, if I had a £5,000 credit limit on my card, I could transfer £5,000 from the card into my bank account. I'd then have £5,000 of debt on my credit card, and £5,000 of cash in my current account, which I could safely withdraw without incurring any of the nasty interest charges mentioned above.
Unfortunately, most cards don't offer this option interest-free, but both the Virgin Money Credit Card MasterCard and the MBNA Balance Transfer cards do. And the good news is that both are both market-leading cards, as each offers 0% on both balance transfers and money transfers for 16 months.
That's the longest interest-free period you can get on any sort of credit anywhere in the market.
So if you do a money transfer using one of these cards, you won't have to pay any interest on the money you've transferred until February 2012! Just bear in mind that a handling fee applies (4% of the transfer) and that after 16 months the rate shoots up, so you'll need to either pay off the balance on the card or transfer your debts to another 0% balance transfer card at this point.
Credit cards
Find out how to pay less interest on your credit card spending, and kick you debts into touch more quickly
If you don't need cash but can use a credit card to make your purchases, then you should consider a 0% new purchases card. These cards allow you to spend money on new purchases without paying any interest for a certain period.
With the best deals on these cards, you should be able to get this 0% interest deal for a year or more.
But be careful, as after this the interest rate mounts up quickly, so you’ll need to have either paid off the bill or moved to another card. See Jane Baker’s Top credit cards for Christmas shopping for more details.
More: Easy ways to borrow thousands of pounds I Fight back against rising loan rates