Different types of borrowing

The information in this guide was last updated on 26/02/2014

With a variety of borrowing options to choose from it can be difficult to know which one is right for you. The table below summarises some key information to help you decide.*

Different types of borrowing
Often used for: Things to remember
Overdrafts Short-term borrowing, emergencies, unforeseen costs
  • Overdrafts can be arranged or unarranged.
  • Look carefully at the fees. Some providers offer a 0% overdraft, others will charge you for going into your arranged overdraft.
Credit cards Short-term borrowing,  security of online purchases (store cards are also a type of credit card)
  • Loyalty schemes available
  • 0% interest and balance transfer offers are often available.
  • Keep up with the minimum monthly payments (or clear your debts each month to avoid interest).
  • Check the small print.
  • Compare similar products.
  • If borrowing a large amount a personal loan may be a more cost-efficient option.
Personal loans (unsecured) Larger amounts of money for specific purchases such as a new car 
  • Choose a licensed provider.
  • Check early repayment charges
  • Usually repayable in fixed monthly instalments.
Mortgages House purchase, remortgaging for better terms/interest rate, a further advance (additional secured loan) on your original mortgage
  • A mortgage is a loan secured against your home.
  • Remember that your home may be at risk if you do not keep up payments.
Payday loans Short-term cash loans until you next get paid
  • Payday loans are a form of short term borrowing, often with very high interest rates.  Payday loans may not be suitable for long term borrowing. 
Unregulated & doorstep loans Short-term cash loans
  • Cost a lot in repayments.
  • Can put you under a lot of pressure to repay debts.
  • Always check the provider is regulated by the FCA.

* Always consider the terms and conditions before agreeing to undertake any form of credit.