Loan Options for Prospective Borrowers: The Good, the Bad and the Ugly

Sometimes we find ourselves in a financial situation that we simply can’t get out of without a little help from an outside source. Although most of us are reluctant to borrow money, it may have gotten to the point where you feel that it’s necessary.

But where do you turn to when you need to secure capital? Most of us have never really considered the logistics of the situation, in the hope that we would never have to. But now is no time to be burying your head in the sand; if you find yourself in need of a helping hand, it’s important to know the options that are open to you…

Bank Account Overdrafts

Bank account overdrafts are one of the most low-risk ways to borrow money – some banks will even offer them interest-free. However, the amount that you can borrow is often limited, and your bank is likely to take your financial history into account when deciding whether or not to extend an overdraft facility to you. This can make them unsuitable or unavailable to those with a poor credit rating.

Credit Cards

Credit cards work on a system that’s nice and easy to understand – revolving credit. This means that when you borrow you agree to a credit limit. Let’s imagine that this limit is £2,000. When you sign up for a credit card, £2,000 is made available to you to spend on anything that you choose. Once you reach this limit, you cannot borrow any more money until some of the original sum has been repaid.

A major advantage of credit cards is that they’ll provide you with protection under Section 75 of the Consumer Credit Act and chargeback rules. However, you’ll usually find that you’re limited to borrowing four figure sums, making them unsuited to those who need to borrow larger amounts.

Unsecured Personal Loans

Loans are often a better choice than credit cards for those who need to borrow larger sums of money. They work by making a set sum of money available to you, which is repayable over a fixed period of time in accordance with a repayment plan. You’ll usually find that you can borrow up to £25,000, depending on the terms of the specific loan.

A major advantage of personal loans is that they offer the lender certainty; you know before you accept the money what your interest rate and monthly repayment sum will be. These interest rates tend to be more competitive than those offered by credit card lenders, with the exception of loans for smaller sums.

Payday Loans

Payday loans are intended to provide lenders with a lump sum of money to tide them over until their next wage. This means that they are only ever suited to short-term borrowing; to use them for longer periods of time can only end in disaster, thanks to their often ruinous interest rates and charges. Due to this, most people will find their lower-risk alternatives preferable.

The upside of these loans is that they usually provide the borrower with a quick decision and almost instant access to the money they require. One of the reasons that this process is so speedy is that lenders ask far fewer questions about your circumstances and ability to repay them, and will often avoid running credit checks entirely.


One of the most archaic forms of borrowing is to approach a pawnbroker. The way that these services work is that the lender accepts an item, such as jewellery or an antique, from you as security in return for lending you a sum of money. As the loan is secured on this item, the pawnbroker has the power to sell it if you default on your repayments.

Although the downside is that you may lose your item, pawnbrokers can offer a useful alternative to other credit options as there is no risk of interest building to a ruinous degree, and credit checks are deemed unnecessary. Pawnbrokers are also flexible in terms of when you can repay them: although loans usually last for six months, repayments will be accepted and your item returned at any point prior to this.

Which credit option would work best for you?

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