Choosing a kind of borrowing

Most people who need to borrow money start by looking at the interest rate. The kind of borrowing shapes the cost as well. Each kind behaves differently when repayments go to plan, and differently again when they fall behind.

Credit cards and overdrafts

With a credit card you can spend up to a set limit. Citizens Advice explains that if you pay off the whole balance by the due date, you pay no interest. If you leave some of it unpaid, you may be charged interest on what is left. Some providers charge a fee for going over the limit, and some charge a yearly fee.

An overdraft works through your bank account. Citizens Advice points out that a bank can ask you to repay all of it at any time.

Personal loans

With a personal loan you borrow a fixed amount and repay it in set monthly instalments over an agreed time. The interest rate is usually fixed. You can normally pay the loan off early, and you may get some interest back if you do.

A loan can be unsecured or secured. A secured loan is usually tied to your home. If you fall behind, the home is at risk.

Buy Now Pay Later

The Financial Conduct Authority (FCA) began regulating one kind of Buy Now Pay Later on 15 July 2026. It calls this kind Deferred Payment Credit. It is interest-free and repaid in 12 or fewer instalments, over 12 months or less.

The rules cover an agreement when the lender and the shop are different businesses. Agreements taken out before 15 July 2026 stay unregulated. Providers set their own fees for late or missed payments.

Hire purchase

Under hire purchase you hire the goods and pay in instalments, and you only own them once you have paid in full. If you fall behind, the lender may take the goods back. Citizens Advice says that once you have paid a third of the total, the lender usually needs a court order to do that.

Credit unions

A credit union is a co-operative whose members pool their savings and lend to each other. Members share a common bond, such as living or working in the same area. Citizens Advice says credit union loans usually work out cheaper than doorstep loans or payday loans.

Comparing what it costs

Lenders have to tell you the APR before you sign. The APR takes in the interest rate, other charges, the length of the agreement and when you repay. Some charges sit outside it, such as a fee for paying off early. The APR is most useful when you compare similar kinds of credit over the same length of time.

Spreading a loan over longer brings the monthly payment down, and you pay more in total. Once you have chosen a kind of borrowing and have offers in hand, loancalculator.co.uk works out the repayments. The rules that protect borrowers are set out on loancash.co.uk.

If repayments are already hard

StepChange Debt Charity says people often take out loans because they cannot afford day-to-day costs. StepChange and National Debtline give free debt advice. So does Citizens Advice. Before borrowing from any firm, you can check it on the FCA register.

Useful links

The FCA also points people to MoneyHelper, a free and impartial service backed by the government, for help with understanding financial products.