When it comes to borrowing, one of the first things you need to consider is what you can afford.
Over time, you need to pay:
It's also important to know that any prospective repayments of over 12 months will impact the amount you may be able to borrow for a mortgage.
Credit cards are a line of credit that offer:
Personal loans are a way to make a big upfront purchase that offer:
Scenario 1: You’re looking to borrow a smaller amount that you can repay within the interest-free period.
Let's say you need to spend £1,000 to go to a family member’s overseas wedding. If you're confident you'll pay back £100 every month, you should pay off the debt within a year. If you opt for a credit card with 0% interest on purchases in the first 18 months, you'll pay no interest at all.
However, if you find yourself outside the 0% interest period, or using the credit card to buy other things, you may have to pay interest and the interest rate may be higher than on a personal loan.
Scenario 2: You don’t need to use the money for anything urgent, but want it on hand in case of an emergency.
Having a credit card, rather than a personal loan, in this instance means that you won’t pay any interest unless you use the money.
Scenario 1: You need to borrow a larger amount that you would like to repay over several years.
Scenario 2: You would like structured, regular repayments.
Scenario 3: You would like to lock in your interest rate for the term of the personal loan.
Let's say you need to spend £6,000 to install a new kitchen.
You can afford to pay back £2,000 per year, so you agree with your lender to repay the loan over three years. You'll pay interest, but it's usually lower than credit card interest and you have structured repayments so you can include them in your monthly budget knowing they won’t change.
Other borrowing options are available. Take a look at more ways to borrow.
Too many applications could indicate to lenders you're struggling for money.
If you just want to compare rates, ask your lender to do a 'quotation search' instead of a 'credit application search'. This means it won’t show up on your credit profile.
Explore more: Hard vs soft credit checks: what's the difference?