Top 5 borrowing alternatives

Whether you're struggling to get a loan from your bank, looking for better value, or trying to support alternative financial models, there are borrowing options for you.

1. Interest-free credit card deals

Credit cards are often maligned as a source of troublesome debt, but if you source the right deal and monitor your usage carefully, they can be a powerful financial tool.

If you have a good credit score, credit card providers will offer deals with 0% interest on purchases for a set period. That means you can pay off/purchase whatever you needed the loan for, but without the interest. Just be careful of interest rates once the interest-free period expires.

If you're not sure you'll qualify for such good deals, check our previous post for tips on how to improve your credit score.

2. Guarantor loans

Banks and credit card providers make decisions based on your credit rating, and usually require you to secure loans against your property, meaning you risk losing your home or valuables if you run into difficulties. Guarantor loans, offered by providers like Amigo Loans, rely on the support of people you trust instead.

What these involve is a friend or family member agreeing to make payments when you can't. So instead of just lending you money, they agree that they'll help cover payments when you really need it. But if you use budgeting software to get a clear view of your finances, and plan your payments carefully, you'll never need more than their faith and a signature.

3. Peer-to-peer lenders

Peer-to-peer lending (also known as social lending) involves taking out a loan from a provider who will source the financing from individuals across the globe.

Operators like Zopa, which has been running since 2005, recruits savers looking for bank-beating interest rates. These savers then put their cash into an online pot, which Zopa lends out to approved loan applicants (like you). Because this system is a streamlined version of what the banks do, their deals are much better: for the savers and lenders. In fact, The Guardian recently found that peer-to-peer lenders are consistently better than banks, sometimes offering half the interest rates.

Other established lenders include Ratesetter, LendInvest and LendingWorks.

4. Credit Unions

These lie somewhere in between guarantor loans and peer-to-peer lenders. Usually set up by an interest group with a 'common bond', for example, there are unions set up for nurses and for the people of Bristol, and they offer members competitive rates on savings, mortgages and loans.

The Association of British Credit Unions and Find Your Credit Union let you search whether you're eligible to join a union near you.

5. Pawnbrokers

While some loan providers are shutting their doors to those in need, the pawnbroking industry has grown by 8% from 2012-13, according to the National Pawnbrokers Association, and is becoming increasingly competitive as it expands.

While you're unlikely to find deals that are as safe or low-interest as some of our other loan alternatives, you're much more likely to get better value from pawnbrokers than from payday loans. But remember - pawnbrokers typically charge 6 - 9% per month, which adds up to 80 - 130% APR (per year). So while it may be a slightly better short-term fix, it's not a viable long-term solution to financial trouble.

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