Three Cost Effective Ways To Borrow Short Term Cash

Post by Sharat on April 10, 2009 · Under Featured Articles, Hints and Tips, Personal Finance, Self Help, banking, credit cards, interest rates, loans, personal loans · Comment 

Many people use their credit cards to borrow cash and end up paying what can only be described as usury interest rates on the money they end up borrowing. This is because card issuers charge the highest rates of interest to people whom they advance cash to using their credit cards.

To obtain cash advance from a credit card issuer very often the card issuer charges an upfront fee to take out cash and APR’s on the amount borrowed can be as high as 30 per cent. Compared to an average APR of 16 per cent for most credit cards and even 0 per cent cards that charge nothing, clearly cash advances from credit cards are not cost effective ways to borrow.

Here are three ways to borrow money cost effectively, with a caveat that one of the methods is not yet available in Australia, but is so innovative that it is worth mentioning. No doubt and Australian version will be available soon.

(1) Money transfers

There is a method to borrow using credit cards without consumers racking up high interest rates or charges.

The method is a unique type of balance transfer known as a money transfer. The transfer is a way of moving money from a credit card account to either a bank account or loan account. If a borrower uses this method, then the borrower still qualifies for promotional 0 per cent balance transfer deals.

In order to make sure that the borrower is not lumped with high interest rates, the borrower must move the cash to their accounts using money transfer, if they withdraw the money from a machine, then they will be hit with high interest rates.

(2) Current accounts

Banks are aggressively competing for deposits these days, since they believe it offers a cheaper more stable source of funding. This means that switching current accounts is another method that could be used to gain access to free borrowing.

(3) Social Finance or Zopa

http://www.zopa.com/global/default.htm

Zopa is an innovative new business model they like to call social finance, not available in Australia quite yet, but no doubt will either have a service soon or result in a rival setting up a similar service to exploit the gap in the market and the extremely intelligent idea.

Zopa allows individuals to borrow directly from other individuals who have money to lend without having to go through a bank. In the UK, Zopa allows individuals to borrow anything from £1,000 to £15,000, over a period of three or five years.

There is obviously a catch though, lending criteria for individuals wishing to borrow using the service is extremely stringent, and they will need to have an extremely good credit score, well above what most of the population score to be able to qualify for the loan.

For individuals who do qualify Zopa is a good way to borrow relatively small amounts for far lower rates than a credit card charges for a cash advance and even perhaps personal loan rates. The added advantage with Zopa is there are no penalties levied for the prepayment of loans.

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