Article Content-Before you take the plunge and take out a loan you need to answer two simple questions: First question Do you really need to borrow all this money? Borrowing money is almost always an expensive business, plus it gobbles up a slice of your income that could be invested to build yourself a stronger future. It goes without saying that, wherever possible, you should aim to borrow as little as possible. For example, you don't have to buy a new car every two years just to keep up with the Joneses. In the UK, sales of used cars exceed new-car sales by about three to one - and a quality second-hand car might be more up your street.

Second question Have you considered the alternatives to an unsecured personal loan? Pay cash or dip into your savings Dipping into your savings is likely to cost a lot less than taking on the burden of a loan. As borrowing rates are higher than savings rates, you stand to gain by having a smaller savings pot, rather than having all your savings alongside a shiny, new loan.

What's more, by delaying your purchase and putting aside some spare cash for a few months, you stand to benefit even more. Although having a fat cash cushion feels nice and secure, it may not be an efficient use of your money. If you decide to fund a major purchase from your savings, leave money in tax-free accounts, such as cash ISAs and TOISAs until last, as you cannot replace money removed from these accounts. Borrow cheaply against your home - but beware!

Yet another option is to consider extending your mortgage, as this usually attracts a low rate of interest. However, as the warning goes, "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it", so don't go down this route unless you're absolutely certain that you can comfortably afford the extra monthly outlay. If you have a flexible or current account mortgage, borrowing against your home is usually a simple process. The other major drawback with borrowing against your home is that you tend to pay off your debt over a longer timeframe, even up to 25 years. This ramps up your overall interest bill, so smart borrowers will organise a secured loan over as short a period as possible, in order to keep the overall cost to a minimum.

Loans for students and graduates If you're a graduate, your bank may offer you a low-cost graduate loan; see this section for more details.

Another option is to get a cheap or interest-free loan from your employer - this benefit is often offered to those employed in the financial services industry. However, you may need to refinance this loan when you move to another firm!

Friends and family Finally, many people are tempted to go cap in hand to family or friends. On the face of it, this may seem like a good idea, as often no interest changes hands. But what happens if you cannot keep up your repayments? Think very carefully before taking this route. For a short-term loan, where you are sure to repay the debt in full, it makes more sense.

Summary:

For short-term borrowing, you might also consider using a bank overdraft or a 0% credit card. "Neither a borrower nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry." Hamlet (Act I, Scene III)

Author Details-James D. Ayrey is a UK finance broker with over 5 years experience behind him. To read some more of his wisdom visit his articles site at Assured Finance Articles - http://www.assured-finance.co.uk/articles.htm

Article source: www.loanarticles.co.uk