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Should you get a credit card, loan or overdraft?

Choosing the right way to borrow money can make it cheaper and easier to manage. Here is when you should use a credit card, loan or overdraft.

Think carefully before securing other debts against your home. You home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

What are they?

Credit Card: A credit card that lets you borrow money pay it off over time. Credit cards are generally meant for short-term borrowing in amounts ranging between £1,000 and £5000. These are good for making small everyday purchases, or spreading the cost of larger purchases over time.

Loan: A loan is when you borrow a fixed lump sum of money that has to be repaid over a set period of time through fixed monthly instalments.

Overdraft: An overdraft lets you borrow money by allowing you have a negative bank balance.

How much you need to borrow?

Another factor in deciding how to borrow money depends on the amount you need to borrow.

Credit CardCredit cards are generally meant for short-term borrowing in amounts ranging between £1,000 and £500, although credit limits can go up to £10,000 and above. Credit cards are generally used for small everyday purchases, but they are also useful for making larger purchases and spreading the cost over time.

Loan: There are several different types of loans that let you borrow differing amounts. Personal loans, for example, are typically meant for borrowing large sums ranging from £5,000 to £25,000. With homeowner loans, you can borrow much more.

Overdraft: You can usually borrow up to £1,000 with an overdraft, although you can borrow more if you have a high income and a great credit history. These are useful if you have occasional cash flow problems.

How quickly you need the money

When you need the money, plays a vital part in which credit product you choose.

Credit Card: The time taken between applying for a credit card and receiving it in the post can take anywhere between seven days and two weeks.

Loans: Funds are typically approved within 24 hours.

Overdraft: An overdraft with your bank can generally be set up in a matter of a few hours.

If you have bad credit, or the lender thinks you may be unable to afford the borrowing, your application could take longer, as they will often ask you to send extra information.

How long do you need to pay it back?

The amount of time you get depends on the type of credit card, loan or overdraft you choose, but usually:

Credit cards ask you to pay back a minimum payment each month but have no set end date. 0% deals on purchases and balance transfers only last a set number of months, currently up to around 29 months.

Loans tend to be better for longer term borrowing, normally between one and seven years.

Overdrafts have no set repayment date, although they can be withdrawn at any time by your bank and any interest free period may only last a set period, for example one year.

What are the pros and cons?

Credit card





  • Could borrow a larger amount

  • Better for long term borrowing

  • Can take as little as 24 hours

  • Interest rate fixed for the term


  • You pay interest on the interest

  • Some loans require security

  • Less flexible repayments

  • Charges to pay back early



  • Easy to withdraw cash

  • Can be quick

  • Flexible borrowing

  • Good for short term borrowing


  • Tend to be smaller amounts

  • Interest rates & fees can be high

  • Interest added to balance monthly

  • Can be cancelled at any time

Getting the best deal

Whether you decide to go for a credit card, loan or overdraft you need to shop around to get the best deal because costs can vary substantially among all three.

If you choose a credit card

You need to pick a card that suits how you want to borrow money:

Here is how to get accepted for a credit card

If you choose a loan

You need to look for a loan that:

  1. Lets you borrow the amount of money you need

  2. Gives you long enough to pay it back with payments you can afford

  3. Offers the cheapest interest rate

Here is how to get accepted for a loan

If you choose an overdraft

You need to look for an overdraft that will cost the least amount of money and suits the way you will use it.

What is an overdraft?

Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.