Traditionally, if you wanted to borrow money then your options were fairly limited. If you were looking for a loan then you could either choose secured or unsecured (depending on whether you owned your home). If you wanted a credit card then you’d go to your bank and if you had bad credit then borrowing money would almost be out of the question.

Fortunately though, the lending market is now much more diverse meaning there is now a product available to suit almost any financial situation. There is a variety of different types of secured and unsecured loans, a huge range of credit cards and even a number of specialist car financing options. While this has now meant that credit is much more accessible to the majority, it has meant that the lending market can be a very confusing place to be.

Throughout this article we are going to aim to simplify the market by breaking down the basics of borrowing money. Firstly we are going to talk about the options available discussing how each of them can be used to help your financial situation.

The Basic Guide To Borrowing Money

Secured Loans

Loans that are secured against your home. In order to be eligible for a secured loan you must own your home outright or be paying a mortgage on the property. If you fail to meet the scheduled repayments on a secured loan then the lender has the right to repossess your home.

Unsecured Loans

Sometimes referred to as personal loans, these are loans that do not require the security of a property or any other asset. There are a number of different types of unsecured loans including the conventional bank loan, guarantor loans, instalment loans, payday loans and peer-to-peer loans. If you miss payments on unsecured loans your home is never at risk of repossession.

The Basic Guide To Borrowing Money

Credit Cards

Unlike loans, credit cards do not have set repayments; it is essentially up to you how much you repay each month. Throughout the month you are able to spend as much as you like up to your credit limit (stated on your credit agreement). At the end of each month you will receive a bill stating the outstanding balance and the minimum repayment. Each month you must pay at least the minimum repayment which will be based on a percentage value of your balance (usually around 3%). In order to avoid being charged interest you can pay off the outstanding balance in full each month, anything that is not paid off will be subject to interest.

The Basic Guide To Borrowing Money


This is a facility that is attached to your bank account which essentially allows you to take out more money than you have. Most arranged overdrafts will be interest free up to a certain amount; however if you exceed this you will be charged interest. If your account does not have an arranged overdraft and you go overdrawn then you can expect to be hit by some heft fees.

Interest Free Credit

This is often seen on items like furniture and technology. It essentially allows you to spread the cost of a large purchase and then pay it back in monthly instalments without being charged interest. This should not be confused with ‘buy now pay later’ schemes; these work on the basis that you pay nothing for a set amount of time but then start paying in instalments which will be subject to interest.

These are five of the most popular methods of borrowing available these days. Choosing the one that is most suitable for you will be dependent on a number of factors including:

  • Your credit history – lower rate credit will generally be reserved for those with a very good credit history.
  • The amount you require – generally loans are designed for those looking for larger amounts while credit cards and overdrafts are designed to cater for smaller amounts
  • Repayment arrangements – naturally, credit cards give you more flexibility in terms of the amount you repay each month however loans are generally easier to budget for due to their fixed monthly repayments.

It’s important that whatever method of borrowing you choose you weigh up all the possible options and think carefully prior to filling out any applications. Comparison engines are a great way of weighing up all the possible options and finding the best possible rates without having to manually visit each lender’s website.