Borrowing money

Make sure you have considered other options before borrowing money. Choose the cheapest type of borrowing and know how you will make repayments.

Borrowing money to pay your debts

It isn’t usually a good idea to borrow money to pay debts, and you should always check what your other options are first. This could include:

  • making sure you are getting all the income you are entitled to, including any benefits 
  • budgeting and making savings if possible
  • claiming on insurance and pensions if you have them
  • using money you have saved for an emergency.

Types of borrowing

There are lots of ways to borrow money. These include:

  • friends and family
  • bank overdrafts
  • credit unions
  • credit cards and store cards
  • personal loans
  • payday loans.

The best type of borrowing for you will depend on your personal situation. It also depends on your credit score (see below).

Our financial team on 0808 808 00 00 can give you free guidance about borrowing.

Secured and unsecured loans

It is important to understand the difference between secured and unsecured loans.

  • A secured loan is money that is secured against something you own, for example your home or your car. The lender can take (repossess) it if you cannot pay the loan back. A mortgage is a type of secured loan.
  • An unsecured loan is not secured against something you own. This means there is not the same risk of your property being taken (repossessed) if you miss payments. But the interest rates may be higher, making the loan more expensive. If you do not keep up with your repayments, this could damage your credit rating.

For more information about borrowing, contact StepChange Debt Charity, Citizens Advice or the Money Advice Service.

Borrowing tips

  • Check what other options you have before borrowing.
  • If you decide you need to borrow money, try to find cheap ways to do it and get some advice. You can get free advice from the Money Advice Service on 0800 138 7777.
  • Try not to use types of borrowing that can be very expensive. For example, using store cards, payday loans, door-to-door lending or unarranged (unauthorised) overdrafts.
  • Before you borrow, make sure you can afford the repayments. You could use the Money Advice Service loan calculator to help you work out how much you will need.
  • Do not use illegal lenders (loan sharks). They charge very high fees and may become aggressive if you cannot repay the money.

You can check if a lender is legal by using the Financial Services Register.

You can report illegal lenders to government Illegal Money Lending Teams on:

  • 0300 555 2222 in England
  • 0800 074 0878 in Scotland
  • 0300 123 3311 in Wales.

In Northern Ireland, call the Trading Standards consumer line on 0300 123 6262.

Your credit score

Your credit score is one of the main things lenders use to decide how likely you are to keep up with repayments. Things that might affect your credit score include:

  • how much debt you have
  • if you have a bank account
  • how well you have kept up with credit payments in the past
  • whether you pay bills on time, for example your mobile phone bill
  • how much of your available credit (money you can borrow on a credit card or store card) you are using.

Your health does not directly affect your credit score. But your credit score may be lower if:

If you have a low credit score and the lender decides you are high risk, they may refuse to lend to you. Or they might charge you a higher than average interest rate. This means the loan will be more expensive.

Your credit score will not be looked at for loans that are:

  • from your local authority, which is called welfare assistance
  • made through Universal Credit, which is called budgeting advance.

This means you may qualify for these if your income is low and you are claiming certain state benefits.

Checking your credit score

When applying to borrow money, you can ask the lender whether they have used a credit reference agency. They may do this when assessing your application. If they have, you can ask which agency they used. The three main UK credit reference agencies are:

You can contact the credit reference agency at any time and ask to see your credit report. This will cost you £2. Checking your report lets you see if there are any errors. You can also check your credit score online for free, using websites such as:

If you do find any mistakes, the credit reference agency will tell you how to correct them. It is likely that all three credit reference agencies hold a report about you. The information they have may be different, depending on which financial organisations they get information from.