Deciding on the best type of credit for you

When you’re borrowing money, it’s important to understand how much the different options cost and how they work. You also need to know how those costs vary depending on how long you want to borrow the money for and when you’re expected to pay it back.

What’s the best credit option for you?

Reason you need to borrow Consider Top tips
I only need to borrow for a short time. Credit card –
many have interest-free deals for up to three months and some credit cards charge no interest on purchases for over a year.
  • Only if you’re sure you can repay the debt within the interest-free period.
  • Cards charge around 17% interest or more once the introductory offer finishes.
  • Know how you’ll pay back the amount before the 0% period ends (set up Direct Debit to pay off regular amounts).
  • Do not borrow more than you need.
  • If you’ve a poor credit record you may be charged a much higher interest rate – some cards also charge a fee.

    Find out more: Credit cards
I want to borrow some money but pay back a fixed amount every month. Personal loan –
may be cheaper than a credit card over a longer period. The interest you’ll be charged may depend on your credit rating.
  • Often there’s a minimum loan amount.
  • You must make the monthly payments.
  • Not all personal loans charge a fixed rate so make sure you check.

    Find out more: Personal loans
I only want to borrow a small amount of money for a short period. Overdraft –
some current accounts offer interest-free overdrafts up to an agreed limit. Other accounts charge fees as well as interest.
  • Only if it’s authorised by the bank (otherwise you’ll be charged a very high interest rate and/or fees).
  • Your credit rating could be damaged if you borrow above your limit.
  • Not for longer term borrowing it is very expensive – the bank can ask for repayment or reduce the overdraft limit at any time.

    Find out more: Overdrafts explained
I have existing debt I want to pay off as cheaply as possible. Balance transfer credit card –
some cards allow you to transfer your debts and pay no interest for up to two years. That means they can be a cheaper option for paying off other debts.
  • Most cards will charge a fee of around 3% if you transfer your balance.
  • Know how you’ll pay back the amount before the 0% period ends (set up Direct Debit to pay off regular amounts).
  • You may only qualify for a balance transfer card if you have a good credit rating.

    Find out more: Choosing and applying for a credit card
I want to deal with my debts as cheaply and simply as possible. Debt consolidation loan –
consolidating existing debts into one loan can mean you pay less each month – and can help keep track of your debts.
  • Talk to one of the free, confidential and independent debt advice agencies to help you understand your options to managing your debt.
  • You might pay less each month, but loans can last much longer so you’d pay back more overall.
  • Don’t secure a debt consolidation loan against your home before taking independent financial advice.

    Find out more: Debt consolidation loans
I want to borrow but my bank won’t help. Credit unions –
if banks can’t help, a credit union could be an option. These not-for-profit organisations usually serve a particular community.
  • Run for and by their members and offer low cost loans (no more than 42.6% APR).
  • Only borrow if you can afford the repayments.

    Find out more: Borrowing from a credit union
I’m struggling to pay my debts and living costs but I can’t get any more credit. An interest-free loan from the Social Fund, or help from your local authority or the Scottish and Welsh governments –
if you’re on a low income and in real trouble, you may be eligible. You need to pay off as much of your debt as quickly as you can to try and bring it under control.
  • Seek help from a free debt adviser who can help you draw up a budget, deal with your creditors and see if you are entitled to any extra benefits.
  • Get help from a free-to-use debt advice charity – don’t pay for advice!
  • Don’t use a doorstep lender or payday loan company - they can be very expensive.

    Find out more: Social Fund loans

    Find out more: Help if you’re struggling with debt

Think about whether you really need to borrow money.