To take out a small loan when I never have before?

[Rizzo8]

Early 30s, good credit score and never used loan or overdraft.

The situation is I am leaving a toxic job after years there and have some weeks between the end of that role and my new job (which involves a £10k salary increase).

I didn't have to have a break between roles but I am mentally and emotionally exhausted and my body is crying out for a break. My home needs attention (a joiner to fix a few things), I have both parents significant birthdays days apart and a trip to visit an old friend I haven't seen since before covid.

I'm also finding food bills etc very expensive and am already looking at how to budget for a short period.

For a loan - I would only need around £500 although the general offering is from £1000.

I took out an overdraft with the bank 6 months ago which I have never used but thought I might have to. The reason I want a loan instead of overdraft is because I can't stand the anxiety of getting to 0 then dipping into it
.Seeing the loan and the money there would feel much better and mean I could actually relax and somewhat enjoy those weeks before new job.

For the record, my partner already gifted me £350 but it hardly made a dent

The alternative is sticking with what I've got but not enjoying my break because I'm counting the pennies day in day out

Just get 0% credit card..

@Janewalter I went through comparison at money supermarket earlier as well as my bank to see what is offered and in all cases seems you need to pay back over 1 year minimum?

Id rather pay back soon if I could

@Littlemisscapable is that better than a loan? Never had a credit card like that do I really don't know much about it

Try Drafty, it's a line of credit that you can pay back as soon as you want.

The sensible thing, surely, is to compare what the cost of borrowing £x is for x weeks with an overdraft, versus a loan, versus a credit card. The 'feeling' you have about the options shouldn't really be the decider.

I would say a 0% credit card, but not sure a joiner would accept this method of payment.

Also what would be my least worse option for credit score which is currently good...

Has anyone used an overdraft and what happens? You drop to 0 then it suddenly looks like you have the amount you applied for originally?

No. If you have a £1,000 overdraft, and there is £0.00 in your account when you spend £50, your account balance then goes to -£50.00.

You need to look at the interest rate charges for the various loan options. A overdraft is also a 'loan'.

And when your account balance gets down to minus £1,000, you can't spend any more unless you agree a bigger overdraft with the bank.

Is that true @NoddyfromToytown2024 ?

I thought if you pay these things back diligently it can actually help your rating

Getting a 0% purchase credit card will improve your credit score IF you use it properly i.e. pay the minimum amounts each month & don't go over the limit.

As PP have said, loans & (usually) overdrafts will incur interest charges.

I’m with the bank of Scotland whilst you sign up to pay a loan over a minimum 12 months. You can pay it back whenever you like with no early redemption penalties. I’d imagine lots of banks have similar. I’d probably just take out a zero percent for a year credit card in your situation unless you are bad with money.

If you sign up to Martin Lewiss credit club it will give you options for what you might be pre approved for. A loan is for longer term borrowing and you pay back a set amount. As another poster mentioned either use your overdraft or get a credit card that lets you take out a money transfer at 0% interest. They will charge around 2-5% of the amount you borrow as a fee so that's only about £20-50 total. However if you're paying it off quickly the overdraft interest rate is likely to be less than that fee. Do you know what your overdraft interest is? If I use my overdraft for a few hundred a month I get charged a few pounds for using the facility. The other thing to think about is if you haven't got much history of using credit they might not be so many cards to choose from.

Yes, if you abide by the rules of the loan / overdraft and pay it back within the time agreed, then it can help your credit rating, as it shows you can be trusted to behave sensibly when borrowing money.

You want the lowest APR. An overdraft is an absolute fortune and can be 20%-30%. This is the most expensive way to borrow money.

I’m more worried that you only want £500 but £350 didn’t touch the sides… will £500 become £1k? I think you need to be realistic about how much you were living on when earning, what you can cut back on to mean you can enjoy the gap but not build up too much debt and how quickly you can pay it back when you are earning again to not have too much interest to pay…

I'm going to be That Person and say that I'm concerned this whole situation sounds a bit... perilous is too strong a word, but 'wobbly' at the very least.

I am assuming you don't have any savings, because if you did, you'd be able to use £500 from them if you needed to? So you're currently effectively living paycheck to paycheck. I'm going to be honest, as appealing as a break sounds in that situation I would not personally feel I could financially justify taking one. I'd be worried that something could go awry with the new job starting, or that an unexpected expense might wipe me out completely.

You're also going to spend that time off, which you talk about in terms of weeks, doing things - work on your home, gifts for people, a trip - that can easily rack up extra costs. I'm not saying you don't deserve a break, because you absolutely do, but personally in your position I wouldn't have committed to one and if I had, I'd be going for the penny-pinching option. (Apologies if that sounds a bit gloomy.)

Why don't you do some temp work in-between jobs? It seems a bit risky taking our a loan so that you can enjoy yourself when you need to be budgeting. These things have a way of biting back.

@Rizzo8 what do you need the money for? How much time between jobs? Can you not use untalented annual leave to bridge you? I'm worried that you're entering into an area of financial mgmt that you don't yet understand and could come unstuck. My feeling is you shouldn't be looking at any kind of borrowing.