Seven ways to borrow, and what each one really costs

Spending now and paying at the end of the month, or spreading a cost over a few months if you have to.

You're given a limit. Each month you get a bill and choose what to pay: all of it, the minimum, or anything in between. Whatever you don't pay off at the end of the month carries over, and interest is charged on it.

Nothing in interest on purchases as long as you pay the whole bill by the due date at the end of the month. Carry a balance forward and standard cards typically advertise 25% to 60% a year in interest; the average people actually pay is lower (what it costs shows it). Cash taken out on a card is charged interest from the day you take it, even if you clear the bill at the end of the month. A 0% deal has an end date, and after it the ordinary rate applies to whatever is left.

Paying only the minimum means you get charged interest that's then added to what you owe. If you only pay the minimum for a few months in a row, your balance can shoot up quickly. In the second month you are paying interest on the original balance and the interest from the end of the first month - and so on. If you pay late, or less than the minimum, a negative mark goes on your credit file.

The cost stays at nothing when the bill is cleared in full each month, and a 0% deal stays free only if what's on it is paid off before the deal ends. There's also a legal protection. Pay for something costing more than £100 and up to £30,000 on a credit card, even if only part of it goes on the card, and if the seller doesn't deliver, goes bust, or sells you something faulty or not as described, you can claim from the card company instead. This is Section 75 of the Consumer Credit Act. It doesn't cover debit cards.

If you have to use your current account to cover a temporary gap in your finances, such as a bill that lands a few days before payday.

Your bank lets your balance go below zero, up to a limit you've agreed (an arranged overdraft). Going below zero without agreeing it first is an unarranged overdraft.

Interest, worked out daily, at one yearly rate. Banks and building societies charge from about 19% to 40% or more. Some accounts give you a small amount interest-free. Since April 2020, banks haven't been allowed to charge more for an unarranged overdraft than for an arranged one.

It quietly becomes permanent. If you're in it every month, you're paying interest every month on money you may have been borrowing for years. Relying on it heavily can also count against you when you apply for other credit. A student overdraft usually stays interest-free for at least a year after your course ends, but the interest-free amount then shrinks year by year, and whatever is still owed when it runs out is charged at the ordinary rate.

The cost stays low when you're in an overdraft for a few days rather than months, or within any interest-free amount.

Typically it's used for a planned, one-off cost, such as a car, a wedding or a big house repair.

You borrow a fixed sum (from a bank or building society, typically between £1,000 and £50,000) and pay it back in a pre-agreed amount every month, usually over five years or less.

Interest at a rate fixed for the whole loan. The rate you're offered depends on your credit history, so the one in the advert isn't guaranteed to be yours once you apply.

A missed payment brings a late fee and a mark on your credit file. Paying the loan off early can carry a charge. This feels unfair, but because you took out a fixed agreement, the organisation that lent you the money has already booked the interest that they are no longer going to get from you.

You know the full cost before you sign, so you can compare it with other ways of paying first. A shorter loan means bigger monthly payments but less interest overall.

Splitting the cost of something bought online or in a shop into a few payments, or paying the whole amount after a set time.

At the checkout you sign a credit agreement with a pay-later company, which pays the shop. You then pay the pay-later company back as per the terms in the credit agreement.

Usually nothing in interest on the short plans. Miss a payment and there's a late fee.

It's easy to have several running at once and lose track of the total. Missed payments can bring fees and a mark on your credit file, and can end in court.

The cost stays at nothing when every payment is made on time.

Pay-later rules changed on 15 July 2026, but not for every plan:

Since 15 July 2026, pay-later plans from a company that isn't the shop itself have been regulated. The company must check you can afford it, you can take a complaint to the Financial Ombudsman, and Section 75 protection applies.

Two kinds of plan don't get any of that. A pay-later scheme run by the shop itself is usually unregulated. And a plan taken out before 15 July 2026 stays unregulated, even though it's still running.

Spreading the cost of a car over a few years.

There are two common kinds. With hire purchase, you pay a deposit (often around 10%), then monthly payments covering the car's price plus interest, then a small final fee, and the car is yours. With personal contract purchase, the monthly payments are lower, and at the end you choose to either pay a large final "balloon" payment and keep the car, or hand it back, or trade it in.

Interest, built into the payments. Personal contract purchase also sets a yearly mileage limit (often around 10,000 miles) and charges for going over it.

The loan is secured on the car. Until you've paid a third of the total, the finance company can take the car back without going to court. And a low monthly payment can hide a big final one.

The law gives you a way out. Once you've paid at least half of the total, you have the right to hand the car back and end the agreement.

Buying a home.

You borrow a large sum secured on the property, often repaid over 25 years or more. The rate is often fixed for the first few years, then moves to the lender's standard rate unless a new deal is agreed.

The lowest rates of any borrowing here. In total cost, it's the highest, because of its size and length: the interest over the life of a mortgage typically runs to tens of thousands of pounds.

Your home may be repossessed if you don't keep up the repayments. And when a fixed deal ends, the payment can jump.

A bigger deposit generally means a lower rate, because the lender is taking less risk.

Additional info:

Buying a first home deserves more than one section, and this is only the mortgage as one kind of borrowing. One thing to know from the student loan pages: a mortgage lender will see your student loan on your payslip, even though it isn't on your credit file.

Small amounts for a short time, often to cover an emergency or a gap until payday.

You borrow a few hundred pounds, usually online, and pay it back in one go or in a few instalments over weeks or months.

This is the most expensive option on this page. The law caps interest and fees at 0.8% of the amount borrowed per day, a default fee at £15, and the total at no more than the amount you borrowed on top of the loan itself.

The cost builds day by day, so a loan that runs on gets expensive quickly, and taking a new loan to clear an old one can become a cycle. Lenders operating outside the law ignore every one of these caps.

Paying back on time keeps the cost to what was agreed, and the legal cap means you can never be charged more than the amount you borrowed on top of it.