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MYJAR Explains: Different Types of Loans and Ways to Borrow

MYJAR Explains: Different Types of Loans and Ways to Borrow

Most people will need to borrow some money from time to time but the choices can be bewildering. Here are our thoughts about the features, advantages and disadvantages of different types of short term borrowing accounts.

The Golden Rules:

  • Don’t borrow more than you need
  • Never borrow if you’re not sure you can pay back on time – that adds cost
  • Not paying back on time will damage your credit rating and make it more difficult to borrow in the future
  • Shop around to get the right deal

Short-term/Payday Loan

They are what they say on the tin! They are there to help you manage for a short period or until next payday. 



Generally fairly small amounts.

Short-term loans will make a long-term problem even worse. If you are in money trouble a short-term loan will make things worse.

Mostly easy to arrange and accessible by internet, phone or text.

Short term loan interest rates are high. Only ever borrow what you are really sure you can repay on the due date. Otherwise the costs mount up.

Cover short term gaps and unexpected expenditure.

Rolling over a short-term loan adds cost. It can lead to you getting out of control of your finances and you might feel you need to borrow more to pay back existing debts. This is always a bad idea.

The terms and costs are usually very clearly shown. It is easy to understand how much you need to pay back and when.


One of the commonest forms of borrowing and extremely flexible. However unarranged overdrafts can be expensive and uncertain! 



Great for helping you with emergencies and unexpected bills.

Overdrafts can be expensive if used to borrow over a long term.

Very flexible and you only pay for what you use. Interest is calculated day by day so you can keep the cost down.

If you exceed your overdraft limit, you might have your payments refused, extra costs added and increased interest.

Charges are not always added when they are incurred, so you might have accrued charges that catch you out from one month to the next.

Credit Cards

Credit card borrowing can quickly get out of control. Card limits can start as low as £250 but can run up to more than £10,000. You might get a credit limit increase without asking for it, so end up borrowing more than you meant to.



If you are buying a big, expensive item and something goes wrong, the card company should refund you if the merchant won’t.

Interest charges build up if you don’t clear the balance each month. Using a credit card for long term borrowing can be very expensive.

Costs can be spread over a period and repayments are flexible. Some months when you have extra cash you can pay more, other times you can just make the minimum payment.

Multiple cards bring multiple bills. It is easy too to lose track of how much you are spending - every charge you make to the card has to be paid back.

You might find that there are extras that come with a card like points that you can use to buy things, insurance and other benefits.

Cards often have different rates depending on how you use it – purchases in shops, balance transfers, cash advances. Always check out the cost of the deal before you commit yourself.

Making the minimum repayment each month means it will take you longer to clear your account and cost more.

Late payment fees might be expensive. Check the costs before you get the card!

Some cards allow multiple users (e.g. husband and wife). You might find that your combined spending makes it difficult to repay the monthly bill.

 Personal Loan

All of the banks offer personal loans, typically:

  • for amounts of £500 up to £25,000
  • from 1 to 5 years
  • with fixed repayments so you know from day 1 how much you will pay each month



They are useful for buying big items like a car or furniture that will last a long time

Borrowing over too long a period means that you might be paying for something long after you have finished with it (e.g. a holiday that lasts 2 weeks might cost you 2 years to repay!)

Costs are fixed up front and if you repay on time, the costs won’t rise

It’s easier to borrow that it is to repay. A bank loan can be a long-term commitment and must be paid, every month, even if your circumstances change.

You can keep the cost within your budget by extending the loan over a period

It is easy to borrow more than you really need. Remember – what you borrow must be paid back.

Often cheaper than borrowing by overdraft or credit card

You can use a personal loan to clear your debts but if you do it is very important not to take on more debt, otherwise the position can much worse.

Need Financial Help?

This article was brought to you by MYJAR. We're an award-winning direct lender, committed to providing clear, simple and responsible loans when our customers need us. If you need some assistance to meet an urgent financial requirement on either a short or long term basis, APPLY NOW for one of our loans.

The government has set up the Money Advice Service and this provides clear, independent information about all sorts of money issues, not just borrowing. Look at their website at

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