Borrowing money

If you do need additional money to tide you over until you receive your benefit payment or to pay for a major item, you may need to borrow money. But before you take out a loan, it is important to understand exactly what you are getting into.

Beware of the sharks

If you are on a low income you may not be able to get credit from high street banks or building societies, so you may be a target for ‘doorstep’ lenders and loan sharks. This may seem to be an easy and convenient way of getting a short term loan, but it can be very expensive.

Say, for example, you wanted to borrow £300 and pay it back over a year. If a lender asked for weekly repayments of £17, this could seem quite affordable. But over the year, you would repay £884 – that's £584 in interest!

Compare this to borrowing from a not-for-profit lender, like a credit union. Your weekly repayment would be £6.24. So over the year you would repay £339.48 or just £39.48 in interest. (Based on figures from My Home Finance - rates may vary.)

Illegal loan sharks can also cause you more than just financial problems. Watch the video below, produced by Trading Standards’ Illegal Money Lending Teams, to find out about the experiences of real life victims of loan sharks.

If you have borrowed money from someone who doesn't have a licence, you haven't broken the law - they have. You can report them in confidence by calling 0300 555 2222.

If you do need a loan, the cheapest and safest way is to join a credit union. But before committing to any loan, consider whether it is really the best option. Work out your household budget to make sure that you can afford the repayments.

Talk to your local Citizens Advice Bureau (CAB) to see if there is any other way you can deal with your financial difficulties, or see the Money Advice Service's "Before you borrow" guide

Credit unions

Credit unions are co-operative, not-for-profit organisations which provide a range of safe and affordable financial services. They are run ‘by the members for the members’.

A typical credit unions loan will cost you no more than 1% a month on the reducing balance of the loan (an APR of 12.7%). So, for example, if you borrowed £1,000 over one year, you would repay no more than £1,067 in total.

Many credit unions charge less, some may charge more, but by law they cannot charge more than 42.6% APR.