Cheap and free ways to borrow money if you’re struggling
CHRISTMAS can be a difficult time of year for many families with all the extra expenses.
Between the rising price of energy and higher mortgage rates, coupled with the ever-growing cost of Christmas Day itself, it’s no surprise that many of us are feeling the pinch.
The good news is that if you’re facing an emergency such as a broken down car or boiler, there are plenty of low-cost ways to borrow money.
However, remember that taking on debt should usually be a last resort used only for necessities.
Whereas if you’re after some winter sun, or new clothes, it might be
better to save up first.
The exception to this rule might be if you qualify for interest-free borrowing, which can help you spread the cost of big purchases.
But this only works if you pay back what you owe in the interest-free period.
Make sure you’ve factored repayments into your budget and thought about whether you could afford them if you lost your job or became ill.
Another reason you might choose debt over saving is for the extra financial protection that a credit card provides, thanks to Section 75 laws.
This means that sometimes it makes sense to book things like holidays on credit, rather than using your debit card.
However, you should pay the balance off in full before you’re charged any interest, otherwise that financial protection will come at a hefty cost.
If you do need to borrow money, whatever the reason, it’s important to do so as cheaply as possible.
The higher your interest rate, the more of your hard earned cash will go directly into your lender’s pockets.
Read on to learn about the most cost-effective borrowing options available, who qualifies for them, and how to apply.
Step 1: Check your benefits entitlements and any grants
Benefits
Many people miss out on financial support they’re entitled to.
According to the Policy in Practice’s annual ‘Missing Out’ report, over eight million people are missing out on a average of £2,700 a year in benefits that they’re entitled to.
The report shows that some of the most frequently under claimed benefits include Universal Credit, Pension Credit, Carer’s Allowance, Child Benefit, and Council Tax Support.
Use online tools like the Turn2us Benefits Calculator to find out what you should be getting.
You’ll need details about your income, housing costs, and bank statements.
Completing the process takes about 10 minutes, and the support you receive could give you a check cash injection which means you don’t need to borrow money anymore.
Welfare assistance grants
Local councils often provide welfare assistance schemes offering free cash or grants for essential items like furniture, utility bills, and food.
The amount you’ll get and what it can be used for varies by area, but some authorities offer as much as £1,000.
These grants don’t need to be paid back, so if you qualify, they’re a much better option than getting into debt.
These grants are typically available to low-income households or those facing financial crisis.
Check with your local council to see what’s available in your area. Applications usually require proof of income and an explanation of your financial situation.
Support for Mortgage Interest (SMI)
SMI loans help with mortgage repayments or necessary home repairs.
You must be receiving Universal Credit or another qualifying benefit to get it.
The loan covers interest on up to £200,000 (£100,000 for those on Pension Credit). Contact the benefit office to apply.
Step 2: Explore low-cost borrowing options
Borrowing from friends or family
If you need cash urgently, borrowing from trusted friends or family members may be the cheapest option, as they may not charge you interest.
However, you should agree payment terms and a schedule up front so everyone knows where they stand.
Make sure you repay what you owe on time, or it could cause a serious rift in your relationship.
Discuss your situation openly and outline how much you need, when you’ll repay, and any other conditions.
Putting the agreement in writing can help keep everyone in check.
Government budgeting loans
If you’re on Universal Credit, you can apply for a Budgeting Advance to cover emergency expenses like a new cooker or work-related travel.
How much you’ll get depends on what you need, but the smallest amount you can borrow is £100.
The maximum amounts are:
- Up to £348 if you’re single.
- Up to £464 for couples.
- Up to £812 if you have children.
Repayments are automatically deducted from your future Universal Credit payments and you can contact your local JobCentre or make a note on your Universal Credit journal to apply.
You’ll have to show you need the money to help you start a new job, and you can only have one budgeting loan at a time.
If you’ve been on Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance or Pension Credit for more than six months, you might be able to apply for a budgeting loan.
The minimum and maximum amounts are the same as for a Universal Credit advance.
You can find out more on the gov.uk website.
Household Support Fund grants
Local councils also provide help through the Household Support Fund for essential items like food and energy bills.
Some will also allow you to use the money for emergency appliances and repairs.
Support is assessed on a case-by-case basis and the amount you can get also varies substantially, as does what the money can be used for.
Contact your council to inquire about the fund and be prepared to show evidence that you are in financial hardship.
Step 3: Financial products
Credit Cards
Credit cards can be a cost-effective borrowing tool if used wisely.
In particular, interest-free credit cards allow you borrow completely free if you pay everything back within the offer period.
There are two main types to look for:
- 0% purchase credit cards: Let you buy things and spread the cost interest free.
- 0% balance transfer cards: These allow you to transfer debts across, helping you to save money on interest. You usually have to pay a fee, but this is often cheaper than leaving debt in a interest-paying arrangement.
These cards are generally available to people with good credit scores.
Use eligibility checkers on comparison websites like MoneySupermarket to find the best deals without impacting your credit score.
Remember, if you don’t make at least the minimum monthly repayment each month, you will lose your interest-free deal.
Ideally, you should try and clear the whole balance in the interest-free period, although it might be possible to transfer the balance to another interest-free card.
Personal loans
Personal loans are often a good option for larger expenses or if you want to consolidate multiple debts under one place.
But before you get a loan, you should shop around to get the best rate and see how it compares to other forms of borrowing.
Interest rates are generally lower for those with higher credit scores, and repayments are fixed over a set term.
Credit Unions
Credit unions offer loans with lower interest rates compared to traditional banks, often tailored to local communities or specific groups.
You usually need to be a member to qualify for a loan.
Check the Association of British Credit Unions Limited (ABCUL) website to find one near you and to see what the requirements to become a member are.
Interest-free overdrafts
Some banks provide free overdraft facilities, such as First Direct’s £250 interest-free buffer and Nationwide’s FlexDirect account with 12 months of free overdraft usage.
Check with your bank to see what’s available.
Step four: consider alternative forms of lending
Employer Advance Schemes
Many companies, including Tesco and Bupa, offer salary advance schemes allowing employees to access their wages before payday.
Contact your HR department to find out if your company has a scheme and what the fees are (typically £1-£2 per advance).
Buy Now Pay Later (BNPL)
BNPL schemes allow you to split purchases into smaller, interest-free instalments.
They’re often interest-free if you make payments on time and in full, but very expensive if you don’t.
Only use this sort of financing if you’re certain you can pay the money back, even if you weren’t able to work.
Interest-free local council loans
Some councils offer interest-free loans for specific needs, such as home repairs or debt consolidation.
Check your local council’s website for application details.
Step 7: Get help from problem debt
If you’re overwhelmed by debt, seek support from free and independent charities such as:
- Citizens Advice
- StepChange
- National Debtline
These organisations can help you negotiate with creditors, create manageable payment plans, and explore options like the Breathing Space Scheme, which pauses interest and collection activities temporarily.
Visit their websites or contact them directly for personalised advice. Most services are free of charge.