Getting your hands on cash for a short time, such as a pre-bonus loan or ‘tide-over' money during a house sale is usually neither easy nor cheap. Banks thrive on locking us into loans for years. Yet a few canny techniques and tricks can leave you in the money, at low cost.
Choosing the right technique for you
The financial services industry likes to box us into categories. Yet play by their rules and you pay by their rules. Getting a loan isn't necessarily the cheapest way to…. well… er… get a loan! Loans are usually inflexible products, lasting years not months, with penalties for early repayment.
Instead, ask ‘what's the cheapest form of borrowing over the period?' Then take whatever form that is and manipulate it into flexible cash. Confused? Don't worry, the whole point of this guide is to show you how.
Three questions to ask yourself
- How much do you need? Do you really need to borrow? If you do, honestly appraise how much and try and keep it to a minimum.
- Do you actually need it in cash? Or are you buying something specific that could be paid for on plastic. Sometimes you'll need to check to find out, eg, some car dealers will allow you to pay on plastic, others won't.
- How long to borrow for? What's realistic? This technique is primarily for borrowing for less than a year, though it can be stretched. Truthfully establish how long you'll need the cash for. Will you really be able to pay it back in six months?
Deciding on the correct route
There are three main methods of securing cheap, short-term cash. The questions below will guide you to the correct route.
. Can you make purchases on a credit card?
Simply buy it at 0%
Get a credit card with an introductory 0% rate for ‘purchases' and buy what you need on it:
- Who's it for? Those with a decent credit history whose spending can be done on a credit card
- Cost? 0%
- Maximum length of borrowing? 16 months (can be extended if you play)
- How much can you borrow? Up to £20,000, depending on credit history
How to do it
Apply for a new credit card which offers 0% interest on new purchases (do ensure it's on purchases not just balance transfers). You can get up to 16 months at 0% (read the 0% Credit Cards guide).
Assuming you're accepted, you'll be given a credit limit (the maximum amount you can borrow) depending on your credit history and income. If this isn't high enough, there's nothing stopping you applying for another card elsewhere and using them in conjunction – though don't apply for lots as that will damage your credit score (see the Credit Ratings guide).
Now simply make the purchase(s) on the card, and make the repayments within the 0% period. You need to pay at least the card's fixed minimum repayment each month (usually around 3% of the outstanding balance), yet to clear the card over the 0% period you need to repay more than that.
If there's a problem and you can't repay in time, then shift your debt to a cheap balance transfer offer before the end of the 0% period (for a full explanation see Best Balance Transfers) otherwise the rate will shoot up to 15% - 20%.
Use a 0% overdraft
Shift to a bank account with an introductory 0% overdraft and use that:
- Who's it for? Those who rarely use their overdraft, and are looking to borrow low amounts for a short period
- Cost? 0%
- Maximum length of borrowing? 4 months
- How much can you borrow? Up to £1,500 depending on credit history
How to do it
Santander offers new current account customers a 0% overdraft for the first four months, after which the charge on the overdraft is £1 per day (max £20 per month).
Of course, if you already have an overdraft you can't use it for new borrowing (though it will cut the cost as you can shift it). Simply set up the account and use the money for whatever you need. For full details read the Best Current Account guide.
Flexible loans allow you to borrow money like a normal loan, but repay more quickly and without penalties:-
- Who's it for? Anyone who needs a larger cash loan, and wants a simple route
- Cost: 5-18% but only for the length of the borrowing
- Maximum length of borrowing? 12 months (any longer and you should consider a standard loan)
- How much can you borrow? Up to £15,000 depending on credit history
How to do it
The vast majority of loans available are designed with structured repayments over a fixed period. Pay them off early and you will be charged a penalty. Yet a few firms offer more flexible loans, which you can repay in full whenever you like, without facing any punitive fees (see Cheapest Personal Loan article for more info).
Top credit scorers earning over £12,000. Zopa* unites people who want to lend with those who want to borrow. You're given a credit score, and are allowed to borrow if you get its top ranking.
Loan rates vary daily and are determined by the amount needed and length of borrowing. For example, borrowing £1,500 for two years (the minimum) can be done at a fixed interest rate of 5.5%. However, a borrowing fee of £170 pushes the APR to 17.4%, and the fee is payable in its entirety whether the loan is repaid early or not.
When you want to pay back, simply contact the lender, and ask to repay the loan, in full with funds from your current account.
An alternative to the above is to consider joining a credit union where short term loans are usually available. Read my full Credit Unions guide for full details.
Credit Card 0%: Card Trick
Please note: the Egg Money card is no longer available. This text has been left here for archive purposes.
Use a special credit card which allows you to move money into a bank as a ‘mule' card. Move 0% debt from other cards to it, then put it into your bank account and use it as cash:
- Who's it for? Those who want the loan in cash form, and are prepared and able to play with fairly sophisticated credit card techniques
- Cost? 0%
- Maximum length of borrowing? 12 months
- How much can you borrow? Up to £10,000 depending on credit history
How to do it
This needs to be done carefully. Read this through at least twice to be sure you understand it. The technique is very powerful, but easy to mess up. You first need to understand how balance transfers work. If you don't, please read Best Balance Transfers first (do not try this by simply ‘withdrawing cash' and putting it in your bank account; you'd incur fees and massive interest charges).
To do this you need to already have an Egg Money card - which is currently unavailable to new customers. However, it charges a £1 monthly fee (£12/year), which must be factored in. Don't get this confused with the normal Egg credit card, it's a totally different product.
Egg Money can both have money balance transferred to it, AND lets you pay cash directly into your bank account at no cost. This second feature enables it to be used as a ‘mule' card for shifting cash from a 0% deal into your savings account. Most cards either don’t permit this, or charge a fee and possibly interest for doing so.
You must be ultra-careful - read the full explanation at least twice to ensure you understand it, as it's much easier to make a costly mistake (never simply ‘withdraw cash' and pay off a loan; you'd incur big fees and interest charges).
Therefore to do this, as well as the Egg Money card, you will need a credit card with a decent 0% offer for balance transfers (see the Best Balance Transfers article).
How does it work?
Once you've got one, then use the Egg Money card to pay cash into your bank account. At this point, you will be in debt with Egg, so then use the 0% balance transfer card to pay off the Egg Money card. If you go for a card which charges a balance transfer fee, work how much you’ll pay and take it off the profit in the Stoozing Calculator to see how much you’ll really make.
This means the Egg Money card now has a zero balance, and you have money in your bank account equal to the amount of 0% debt on the balance transfer card, which can be used for your short term loan.
Got that? Probably not, so follow through the guide below…
|0% Card Egg Money|
Cash wanted: £3,000
Ask your Egg Money card to pay £3,000 into your bank account. Be aware that for a short period you will be in debt on the Egg card and accruing interest, so there is a risk of a cost if the payments don't get sorted quickly.
Once the £3,000 is in your current account, it is available to use as a loan.
|Egg Money Pay off loan|
Bank account: £3,000
Now we need to pay off the debt in your Egg Money account, so that you owe it to the credit card at 0%. This is simple, just do a balance transfer with the 0% card.
After this, you will have a zero balance on the Egg Money card, and owe the 0% card the full amount
| Bank account: £3,000,
Egg Money: £0
0% balance transfer card: £3,000 in debt
What happens when the 0% period ends?
Hopefully you have already repaid the debt, after all, that is the point of this technique. If you've been unable to, you need to move the debt onto a card which offers cheap balance transfers, to avoid paying expensive interest – you need to do this in the month before the 0% period ends (see Best Balance Transfers guide).