Borrowing money is a fact of life these days. But it’s important to think carefully about what you are borrowing the money for, where from and how much you will be paying back.

Things to Consider Before Borrowing

Sometimes it is difficult to avoid borrowing, especially when things change. If you have a new job you might need to borrow for travel or clothes. There are other times where it simply helps you spread the cost, like for Christmas or holidays.

There are so many different ways to borrow (taking ‘credit’) and the charges you will pay can be complicated.

The sorts of things to consider before borrowing are:

  • How much you need to borrow?
  • How much can you pay back each week or month?
  • How long do you want the loan for?
  • Who will lend you the money at the cheapest rate of interest and with the lowest charges?

Common Types of Credit

Bank Loan

This will generally be set for amount to be paid back over a set period of time.  For example: £3,000 to be paid back over one year.

Credit Union Loan

There are lots of flexible options with a credit union.  You can discuss what loan meets your needs the best, but you will always be charged interest only on the amount you owe.  In other words, as you repay the loan your interest charge goes down. You can find out more on our credit union page.

Credit Cards

Are one of the most flexible forms of credit. You can buy goods and services and be sent a bill at the end of the month. But, it is easy to overspend beyond your budget and you will be charged if you don’t pay the full amount off.


Many people don’t think of an overdraft as credit, but it is!  If you don’t have enough money in your bank account, you bank may agree to ‘lend’ you enough to cover payments to a certain limit.  This can be a very expensive way to borrow money.

Doorstep Lender

Companies that send a person to collect money from you at home every week or month are known as ‘doorstep lenders’. They will give you the money for your loan in cash.  These types of loan may be very convenient, but there is usually a high interest rate attached.  It is important to look at the total amount you are paying back as well as how much you pay each week or month.

Payday Loans

Are exactly what they say they are. They are designed to lend you money until your next payday, when you will start paying them back. You might have seen news stories about payday loans. There is no doubt that their interest rates are very high. Even more worrying than that it is very easy to end up not managing to get through to your next pay day without borrowing again next month and the next month after that.  Some people have said that their debts have gone out of control because of this.

Loan Sharks

Loan Sharks lend money illegally. In this country, to lend money you have to get a licence from the Office of Fair Trading and lend within their rules. Apart from being illegal, the problem with borrowing from a loan shark is that you will get very little paperwork and are likely to pay back much more.

There are examples of people borrowing £150 for Christmas presents and paying back more than £5,000 over 5 years. Also, loan sharks may take your possessions (like your passport) as security and use threats and violence to get more money out of you. In some cases people have been forced into prostitution or become involved with drugs to pay their debt to the loan shark.

Always use a properly licensed lender. If you have borrowed from a loan shark, you can get specialist help by ringing the Wales Illegal Money Lending Unit on 0300 123 3311. They are specialists in dealing with the problem and will always help you confidentially.

The Cost of Borrowing

When you are deciding which loan is best for you, you may notice that the more convenient it is to get the cash, the more it will cost you in the long run.

There is a reason for this. Lending money quickly, especially to a new customer, is risky. The loan company doesn’t know if you are going to pay them back and so their charges are much higher. Before you borrow from one of these companies, just stop, and consider whether the convenience is worth it. It could cost you hundreds of pounds. You can get more help with options for borrowing money here.