Compare the cost of borrowing £1,000

If you need to borrow money identify the cheapest possible way of borrowing that money and repay it as quickly as you can. In some cases it will mean a deal with the lowest possible interest rate, but in others it may not, for example if the lowest rate comes with the price of high charges or penalties.

Compare the cost of borrowing £1,000 across three common types of finance

It’s important to understand how much the different options cost and how they work. Make sure you compare costs and check you can afford the repayments. Look at these examples of types of credit and read our guides to borrowing money.

Interest free credit card for balance transfers and new purchases for first 15 months*

Average Interest rate (representative APR): 0% on a transfer value of £1,000 (plus a transfer fee, typically equal to between 2% and 3% of the balance)

Average APR of 17.7%1 beyond the 15-month introductory interest-free period.

Monthly repayment: £66.67**

** assumes that the loan is repaid at the end of the 15-month promotional period.

Total amount repayable: £1,030 (£1,000 original loan + £30 one-off transfer fee based on 3%)

What’s it good for?

  • Interest free borrowing
  • Planned purchases e.g, a holiday, new furniture and transferring existing credit and store card debt
  • Spreading the cost of borrowing if you can transfer the remaining balance at the end of the promotional period to a new 0% interest free deal

Top tip

Consider taking out two separate cards – one for balance transfers and one for purchases. Compare credit cards to find the best deal.

Things to be aware of:

  • You need to have a good credit rating to be accepted for the best deals and some have minimum income level requirements
  • *The APR promotional period and the amount that can be transferred is dependent on your personal circumstances
  • Read the terms and conditions carefully as most cards do not offer the same interest-free period on both balance transfers and purchases
  • You will revert to the standard APR (17.7% on average but can be higher) once the introductory period finishes
  • Although you won’t have to pay any interest on the amount you transfer/spend during the introductory period, you will still need to pay a minimum monthly payment (normally 1%-2.5% of the balance) – failure to do so could result in a late payment fee (typically £12) and you may no longer be eligible for the interest-free deal
  • The 0% rate does not apply to cash withdrawals or credit card checks

Find out more:

Unsecured personal loan over two years

Average Interest rate (representative APR): 18.6%

Monthly repayment: £50.00

Total amount repayable: £1,189 (£1,000 borrowed + £189 interest)

What’s it good for?

  • Budgeting – the monthly payment and interest rate are usually fixed for the term of the loan
  • Planned purchases e.g. a car, home improvements or loan consolidation

Top tip

Use our Loan calculator to help you work out how long it will take to pay it off or how much you’ll need to repay each month. You can also compare different loan rates and lengths and save your results in a table to help you compare.

Things to be aware of:

  • You might not get the APR advertised as it depends on your credit rating, so check the terms and conditions carefully before you accept the loan
  • Taking the loan over a longer term reduces your monthly payments but you will pay back more in total
  • Lenders generally charge a higher APR for smaller loan amounts (ie £1,000 or less)
  • £1000 is usually the minimum loan available from banks and other High Street lends

Find out more:

Typical store card paid back over two years

Average Interest rate (representative APR): 30%

Monthly repayment: £55.91

Total amount repayable: £1,342 (£1,000 borrowed + £342 interest)

Unless you know you can pay off the balance every month try to avoid store card debt if you can. This is an expensive way to get credit.

Top tip

Transfer your store card balance to a 0% or lower rate credit card. If you can’t do this, try to pay more than the minimum repayment each month.

Things to be aware of:

  • Borrowing on a store card can be very expensive, as they typically charge higher interest rates than credit cards
  • Paying the minimum amount each month makes it look like the debt is affordable. But because the interest is constantly adding up, it will take you much longer to pay it all back

Find out more:

1 See Bank of England – table G1.3 - average quoted household interest rates for credit card

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