Almost everyone in the UK borrows money at some point, whether it is a mortgage for a first home, a credit card used for an emergency repair, or a personal loan for a car. The sums may differ, but the principle is the same: you are renting money, and the rent — the annual percentage rate, or APR — decides what that borrowing actually costs you. Choose the right type and the cost stays low; choose wrong and interest and fees quietly swallow a large chunk of what you borrowed.
This guide runs through the main ways to borrow money in the UK — everyday cards, loans, overdrafts, retail credit and the high-cost end of the market — with the typical sums, rates and terms attached to each. It is educational rather than promotional, not advice to borrow at all.
The everyday card
Credit cards let you spend up to an approved limit and repay over time, and they come in three broad varieties. A 0% purchase card charges no interest on what you buy for a window of typically 3 to 21 months — ideal for a large, planned purchase you can clear inside it. You must still make at least the minimum payment each month, and once the promotion ends the standard APR, usually 20% to 30%, applies to whatever is left. A balance transfer card exists to push existing high-interest debt onto a 0% deal for a fixed period; a fee of 1% to 4% of the transferred amount usually applies, and the balance needs to be cleared before the promotion lapses or the standard rate resumes. Rewards and cashback cards pay points, miles or cashback — typically 0.5% to 5% of spending by card and category — at higher APRs, so they only make sense if you clear the balance in full every month.
Personal loans
Personal loans are the classic lump-sum option: a fixed amount, usually £1,000 to £25,000, repaid in fixed monthly instalments over one to seven years, with the rate set by your credit history. At the excellent end, a score of 960 or above attracts typical APRs of 3% to 6%: borrowing £5,000 over three years costs about £145-150 a month, or £5,220-5,400 in total. A good score (800-959) brings 6% to 10%, at £150-160 a month and £5,400-5,760 over the term; fair credit (560-799) pushes the rate to 10% to 20%, costing £160-180 a month and £5,760-6,480 in total; and a score below 560 typically commands 20% to 40% or more — £180-220 a month, or £6,480-7,920 by the end. Because the rate is fixed, the payment never changes — easy budgeting and, for most borrowers, a lower APR than cards or overdrafts. The trade-offs: you cannot redraw the money once it is spent, some lenders charge arrangement fees, early repayment can attract a charge of typically one or two months’ interest, and missed payments damage your credit file.
Overdrafts
An overdraft simply lets your current account dip below zero, in two versions. An arranged overdraft is a limit agreed with the bank in advance, with interest charged on what you are overdrawn, usually at a daily rate; typical arranged rates run around 39% to 40% EAR, though many banks offer a small interest-free buffer of, say, the first £25 or £50. An unarranged overdraft — spending past your limit, or going below zero without anything agreed — costs more, with some banks charging daily fees of £5 or more on top of interest. Since 2020, FCA rules have required banks to charge arranged and unarranged overdrafts at the same rate, though unarranged usage can still incur extra fees in some cases. Either way, an overdraft is for a short-term gap measured in days, not a place to hold long-term borrowing.
Store credit and buy now, pay later
Retailers increasingly offer their own credit, and the two most common forms are interest-free store credit and buy-now-pay-later (BNPL). Furniture, electronics and department stores often advertise 12 to 36 months interest-free credit; repay in full within the window and it costs nothing, but miss the deadline and interest is charged retroactively — often 20% to 30% APR — on the original balance, and some deals add a monthly account fee. BNPL services such as Klarna, Clearpay and Laybuy split a purchase into instalments and are typically interest-free if you pay on time, but late payments can draw fees and, from 2024, providers must report to credit reference agencies — yet BNPL is not regulated by the FCA in the same way as traditional credit, although that regulation is expanding.
Payday loans
Payday loans are short-term, high-interest loans designed to be repaid on your next payday — typically £50 to £1,000 over one to three months, at APRs of 1,000% to 1,500% or more; the total cost of borrowing £100 for three months typically runs to £30-150. Payday lending is legal in the UK but heavily regulated: FCA caps limit total charges to 0.8% per day and total repayment to double the amount borrowed. Even within those caps, payday loans remain among the most expensive money available, and rolling one over or taking several at once can start a debt spiral. They belong in the picture only as a last resort, and even then only if you are certain you can repay in full on the due date — cheaper alternatives exist first: an overdraft, a credit union loan, a family loan or a 0% card.
Guarantor and logbook loans
Guarantor loans make borrowing possible for people with thin credit files by adding a second signatory — usually a family member with a good credit history — who becomes legally responsible for the debt if you default. Typical APRs run 30% to 50% on amounts of £1,000 to £15,000 over one to seven years. Both credit scores are on the line, and the guarantor carries the financial risk if payments lapse. Logbook loans are secured against your car: you keep driving but hand over the V5C, with typical APRs of 100% to 400% on £500 to £50,000 over 12 to 36 months. Default, and the lender can repossess the vehicle. Some providers are not regulated by the FCA — check before borrowing, and cheaper alternatives almost always exist.
Peer-to-peer and family lending
Peer-to-peer (P2P) platforms such as Zopa, RateSetter and Funding Circle match borrowers directly with individual investors who fund the loan, cutting out the bank. Rates of 3% to 30% reflect your credit rating, with typical amounts of £1,000 to £25,000 over one to five years. Because the money does not come from a bank, a platform’s collapse could disrupt repayments, and P2P arrangements are not covered by the Financial Services Compensation Scheme (FSCS) in the same way as bank deposits. Borrowing from family or friends is the most informal route of all. Do it in writing — amount, interest, schedule, what happens if you cannot pay, signed by both sides — pay even a token rate of interest to show good faith and keep large sums out of HMRC’s gift treatment for inheritance tax purposes, and set up a standing order so nobody has to ask. A default can destroy a relationship no contract protects.
The main options at a glance
| Borrowing Type | Typical APR | Typical Amount | Typical Term | Best Suited To |
|---|---|---|---|---|
| 0% Purchase Card | 0% (intro), 20-30% after | £500-£5,000 | 3-21 months | Large planned purchases |
| Balance Transfer Card | 0% (intro), 20-30% after | £500-£10,000 | 6-24 months | Clearing existing card debt |
| Personal Loan | 3-20% | £1,000-£25,000 | 1-7 years | Fixed borrowing — car, home improvements |
| Arranged Overdraft | 39-40% | £100-£3,000 | Ongoing | Short-term cash-flow gaps |
| Store Credit / BNPL | 0% (promo), 20-30% after | £100-£5,000 | 3-36 months | Specific retailer purchases |
| Payday Loan | 1,000%+ | £50-£1,000 | 1-3 months | Emergencies only — avoid |
| Guarantor Loan | 30-50% | £1,000-£15,000 | 1-7 years | Poor credit with a responsible guarantor |
| Logbook Loan | 100-400% | £500-£50,000 | 12-36 months | Car owners with poor credit — avoid |
| Peer-to-Peer | 3-30% | £1,000-£25,000 | 1-5 years | Good credit, lower rates |
| Family Loan | 0-5% | Any | Any | Interest-free, flexible borrowing |
Matching the borrowing to the job
The most useful question is not “what can I borrow?” but “how long do I need the money?” For a short-term gap under twelve months — a cash-flow shortfall or a one-off purchase you can clear quickly — a 0% purchase card or a small arranged overdraft wins on speed and cost. Over one to five years, a personal loan gives fixed, predictable repayments at a lower rate than a card for a car, a home improvement, a wedding or debt consolidation; shop around, because the rate your credit score attracts varies between lenders. Beyond five years, mortgages are the realistic option for buying a home: secured borrowing earns the lowest interest rates, terms typically run 25 to 35 years, and remortgaging is routinely used to release equity for improvements or to consolidate dearer debts. In a genuine emergency, an arranged overdraft or a 0% card is the quickest and cheapest route, with a credit union loan — reasonable rates with fast access — as the fallback. And with a poor credit history, credit unions — which lend affordably regardless of your history — and guarantor loans are the sensible doors in, while payday and logbook loans are best avoided.
None of this is a recommendation to borrow — just a reminder that borrowing carries an enormous range of price tags. Compare APRs before applying, check your credit score first so you know which rates you are likely to be quoted, and read the small print for fees and penalties. The cheapest money is usually the money you do not borrow at all, which is why an emergency fund quietly lowers the cost of every other option here.