This information applies to England, Wales, Scotland and Northern Ireland
There are a lot of ways you can borrow money. Borrowing money can also be called credit.
Before you borrow money it's important to make sure you get the best deal you can and will be able to keep up the repayments. If you don't keep up the repayments, you could be taken to court and might even lose your home or other valuable possessions.
This page tells you what you need to think about before you sign up to anything. It tells you:
There is also a checklist of questions to help you get the best credit deal.
There are a lot of ways you can borrow money. Different types of borrowing suit different situations.
For more information about the different types of borrowing, see Credit.
If you have a poor credit history, you may have to pay more for your borrowing. Many lenders offer loans or credit cards with a range of interest rates that vary according to your credit history. If you are finding it difficult to get a loan or credit, it’s worth checking if you have a credit union in your area.
To find a credit union near you and check out what your local credit union offers, you can:
For more information about checking your credit history, see Being refused credit in Credit.
Once you have chosen the type of borrowing that suits you, you can look around for the best credit deal. To get the best deal available, you need to spend a bit of time looking at what is on offer from different lenders. It’s a good idea to get a few quotes so that you can compare cost and other terms of the agreement. Take information home to look at if you can, to give yourself time to take it all in.
If you are borrowing jointly with someone else, make sure you both understand all the terms and conditions. If you are not sure about anything, ask questions before signing the agreement.
The cost of credit can vary enormously depending on the lender and the type of deal you choose. The things to look out for when comparing the cost of the credit deal are:
The Annual Percentage Rate, usually called the APR, is a standard way of showing the cost of borrowing. The APR is worked out taking into account the following things:
Some charges aren’t included in the APR. These include things like charges made if you pay off the loan early.
Lenders have to tell you what the APR is before you sign an agreement. The APR varies from lender to lender and between different types of credit. You can use the APR to compare what deals are on offer. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, shop around.
Comparing the APR works best if you are comparing similar types of credit over the same repayment period. For example, loans for the same amount to be paid back over the same number of years.
The table below shows an example of how different APRs affect what you would have to repay if you borrowed £1,000 over ten years:
| APR | You will pay in total: |
| 5% | £1,266 |
| 10% | £1,557 |
| 15% | £1,867 |
| 20% | £2,191 |
| 25% | £2,523 |
| 30% | £2,860 |
Check whether the interest rate (included in the APR) is variable or fixed rate.
Variable rate interest may change during the agreement. If the rate is variable, your repayments could go up or go down.
Fixed rate interest can't be changed once the agreement is made. If the rate is fixed, your repayments will stay the same.
Find out from the lender whether there are any costs that are not included in the APR. For example, any of the following charges might not be included:
Many lenders try to sell you an insurance policy as part of the credit deal. This is to cover your repayments if you're unable to earn because of illness or redundancy. Sometimes, the cost of this insurance is added to the amount of the loan and will increase the amount of interest you will have to pay. For more information about this type of insurance, see Payment protection insurance.
When you borrow money, you and the lender will sign a credit agreement. This sets out details of all the things you and the lender agree to do as part of the deal. This is called the terms and conditions of the agreement.
Always read the small print before signing anything. Most lenders have a legal duty to provide pre-contract information which you can take away with you and study. The information which must be provided includes:
Some lenders will make it a condition that you offer your property, usually your home, as security for the loan. This is called a secured loan. If you don’t keep up repayments, the lender can take court action to repossess the property.
Repayment arrangements will vary depending on the type of borrowing. The lender can tell you what options there are for making repayments. Bank loans usually have to be repaid by direct debit directly from a bank account so you need to check you have the right arrangements in place.
For more information about credit agreements, see Credit.
It's a good idea to work out how much money you've got coming into your household and how much you spend. This is called your budget. Working out your budget will help you make sure that you have enough spare income to afford the loan repayments.
For more information about working out your budget, in England Wales and Northern Ireland, see Help with debt. In Scotland, see Help with debt.
Remember, you will need to be able to keep up with the repayments for the whole period of the loan. If you know about any changes in your circumstances that are likely to happen during the life of the loan, for example, a change in income, think about how you will manage your repayments.
Spreading the loan over a longer period can mean lower instalments which may be more affordable. But this means you will pay more in the long run.
The Money Advice Service website has an online loan calculator which can help you decide whether you can afford the repayments and compare different loans. Go to: www.moneyadviceservice.org.uk.
Payment protection insurance will cover your repayments in certain circumstances such as losing your job or being off sick for a long period of time. However, this sort of insurance may not be suitable for you. For example, it isn't suitable if you are self employed or have already been diagnosed with an illness.
If you are offered payment protection insurance as part of the credit deal, check whether you would be better off to buy it separately from another provider.
For more information about payment protection insurance, in England and Wales and Scotland, see Payment Protection Insurance in Credit and debt fact sheets.
You can also find information about payment protection insurance on the Money Advice Service website at: www.moneyadviceservice.org.uk.
The following list of questions should help you to decide whether a credit deal is right for you.
About my personal situation
About the credit deal
The Money Advice Service is a free, independent service. Their website has lots of useful information about managing your money, mortgages, insurance and other financial products. It also has an online loan calculator which can help you decide whether you can afford the repayments and compare different loans. Go to: www.moneyadviceservice.org.uk.
You can get information about credit unions from ABCUL by:
You can get information about credit unions by checking the ACE Credit Union Services website at: www.acecus.org/pages.
In Scotland, you can get information about credit unions by checking the website of the Scottish League of Credit Unions members at: www.scottishcu.org.
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