What is the cheapest way to borrow money in the UK?

The cheapest options are: 0% credit cards (for purchases or balance transfers — no interest during the promotional period), personal loans from mainstream lenders (typically 5-10% APR for good credit), or borrowing from family (often interest-free). Avoid payday loans and doorstep lenders — these charge extremely high interest rates.

Should I use a credit card or personal loan?

Use a credit card for short-term borrowing (under 24 months) especially if you can get a 0% deal, or for purchases between £100-£30,000 (Section 75 protection). Use a personal loan for larger amounts or when you want fixed monthly payments over a set term. Loans tend to be cheaper for long-term borrowing.

What is the best way to borrow £5,000?

For £5,000, a personal loan typically offers the best combination of rate and repayment structure (fixed monthly payments over 1-5 years at 5-10% APR). A 0% purchase credit card is ideal if you can pay it off within the 0% period. Avoid high-interest options like credit card standard rates or overdrafts.

Borrowing Options Compared UK — Loans, Cards, and Alternatives | PocketWise

Whether you need to fund a large purchase, cover an emergency, or consolidate existing debt, understanding the full range of borrowing options helps you choose the cheapest and most suitable way to borrow for your situation.

Borrowing Options at a Glance

Method	Typical APR	Amount	Term	Best For
0% credit card	0% (promo)	Up to £10,000	6–24 months	Short-term, planned purchases
Personal loan	5–15%	£1,000–£25,000	1–7 years	Larger, fixed-term borrowing
Arranged overdraft	35–40% EAR	£100–£3,000	Flexible	Very short-term (days)
Balance transfer card	0% (promo)	Up to £10,000	12–30 months	Moving existing card debt
Remortgage/further advance	4–6%	£10,000+	Up to 25 years	Homeowners borrowing large sums
Credit union loan	3–42.6% APR	£50–£15,000	Flexible	Affordable, community lending
Family/friends	0% (usually)	Varies	Agreed	No/low cost, if relationship allows
BNPL	0% (if on time)	Varies	4–12 weeks	Small online purchases
Payday loan	1,000%+ APR	£100–£1,000	1 month	Avoid — extremely expensive

Detailed Comparison

Personal Loans

Feature	Detail
APR	5–15% (depending on amount and credit score)
Amount	£1,000–£25,000
Term	1–7 years
Payments	Fixed monthly
Early repayment	Usually allowed (up to 58 days’ interest penalty)
Credit check	Yes

Best rates (under 6%) are typically for amounts of £7,500–£25,000 with good credit.

Use our personal loan calculator to estimate costs.

Credit Cards

Type	Best For	Key Benefit
0% purchase	Planned large purchases	No interest for up to 24 months
0% balance transfer	Moving existing card debt	No interest on transferred debt
Rewards/cashback	Everyday spending (paid in full monthly)	Earn rewards on spending
Credit builder	Building/rebuilding credit	Accessible with poor credit

Overdrafts

Feature	Detail
Cost	~40% EAR (since 2020 standardisation)
Limit	Varies (usually £100–£3,000)
Suitable for	Very short-term (days, not weeks)
Risk	Easy to remain overdrawn; expensive long-term

Credit Union Loans

Feature	Detail
APR	3–42.6% (capped by law)
Amount	£50–£15,000
Access	Must be a member (usually based on location, employer, or community)
Benefits	Often more flexible, ethical lending, may lend when banks decline

Borrowing Against Your Home

Method	APR	Risk
Remortgage	4–6%	Home is at risk
Further advance	4–6%	Home is at risk
Secured loan	5–10%	Home is at risk
Equity release	5–7% (compounding)	Reduces estate value

Warning: Securing debt against your home means your property can be repossessed if you do not keep up payments. Only consider this for very large sums where the lower rate significantly reduces cost.

Cost Comparison: Borrowing £5,000

Method	Monthly Payment	Term	Total Cost	Total Interest
0% credit card	£277	18 months	£5,000	£0
Personal loan (6%)	£97	5 years	£5,800	£800
Personal loan (10%)	£106	5 years	£6,370	£1,370
Overdraft (40% EAR)	Flexible	5 years	£9,000+	£4,000+
Credit card (22% APR, min payments)	~£100 (reducing)	7+ years	£8,000+	£3,000+

Decision Framework

Step 1: Do You Need to Borrow?

Consider First	Instead of Borrowing
Can you wait and save?	Use our savings guides
Is there a cheaper alternative?	Buy second-hand, cheaper option
Can you earn extra?	Side hustles
Do you have an emergency fund?	Use it (that is what it is for)

Step 2: Choose by Amount and Timescale

Amount	Short-Term (Under 2 Years)	Long-Term (2+ Years)
Under £1,000	0% credit card, overdraft (days only)	Not applicable
£1,000–£5,000	0% credit card	Personal loan
£5,000–£15,000	Personal loan	Personal loan
£15,000–£25,000	Personal loan	Remortgage (homeowners)
£25,000+	Remortgage/secured loan	Remortgage/secured loan

What to Avoid

Product	Why
Payday loans	APRs over 1,000%; designed to trap people in debt
Doorstep lenders	Very high APR; predatory practices
Loan sharks	Illegal, dangerous, no consumer protection
Guarantor loans	Expensive; puts someone else at financial risk
Extended overdraft	40% EAR adds up quickly

If you are struggling to access affordable credit, contact a credit union or seek advice from StepChange or Citizens Advice.