Your cookie preferences

We use cookies and similar technologies. You can use the settings below to accept all cookies (which we recommend to give you the best experience) or to enable specific categories of cookies as explained below. Find out more by reading our Cookie Policy.

Select cookie preferences

Skip to main content

What's the cheapest way to borrow money?

If you're looking to borrow money and keep the costs down you could choose a loan with a low interest rate or a credit card with 0% interest.

Share this guide
Online Banking Explained
What's the cheapest way to borrow money?

Compare cheap loans

Compare personal loans from £1,000 to £35,000 and find the right loan for you.

What is the cheapest way to borrow money?

The cheapest way to borrow money will depend on how much you want to borrow, and for how long. The interest rate you will pay is affected by the size of the loan and your credit rating. You can shop around for the best loan rates using Uswitch as there are lots of different deals available.

How do I find the best deal on borrowing money?

Depending on your needs, the best way to borrow money short-term could be a personal loan or a credit card. These aren't the only ways of getting hold of money, however. You can also use a bank current account overdraft or borrow against the value of your house, known as a secured loan or second-charge mortgage. 

If you have a flexible mortgage, or smart mortgage, then you might find accessing the funds from that could be cost-effective. But always make sure you can pay it back.

The best way to decide how to borrow money cheaply is to think about how much you want to borrow, how long you will need it for, and how you are planning to pay it back. Also keep in mind what you want the money for - is it to purchase something new, or to repay other money you owe elsewhere?

If you're looking for a relatively small amount of money, then you could look for a cheap loan with the lowest APR, an overdraft, or a credit card with a 0% interest period.

If you are planning to borrow a larger sum of money, or you need to pay it back over the long term, then finding a mortgage or remortgaging your existing home loan could be an option. 

Again, it pays to shop around with Uswitch to find the best deal as the options are constantly changing and new deals are coming onto the market all the time.

Where can I find the best deals on borrowing money cheaply?

A number of factors go into finding the cheapest way to borrow money: the lowest interest rate, how long the term of the loan will be, and whether you can find a long period of no interest at all, for example on a 0% interest credit card. You might also want to consider whether there would be any charges if you came into some money and could pay back the borrowing sooner than planned.

There certainly isn't one loan that works for everyone, but there are some ways which are generally cheaper to borrow than others.

Here are some things to consider when you're thinking about the best way to borrow money:

  • How much do you need to borrow?

  • How long do you need it for?

  • What will you use the money for?

Think about your income and credit history – if you have a poor credit rating you might not have access to all the loans in the market. The best deals at the lowest interest rates tend to be offered to those people with a good credit history and credit rating.

A credit card might be the best option, particularly if you can get a 0% deal. You can find out more about how to use credit cards in our guide.

What is the best way to borrow money for the short term?

For the short term, your options are a credit card, a personal loan or your bank overdraft. All have different terms and conditions and interest rates, so you need to think about which best suits your needs.

0% purchases credit card

One of the cheapest ways to borrow money is to use a 0% purchases credit card.

This type of credit card allows you to make purchases, without paying any interest on them for a fixed period of time. The term can be from three to 21 months.

After the 0% interest period has finished, the interest rate switches to a higher rate, known as the standard purchase rate. That’s why it’s really important to pay off what you owe in the 0% offer period. You may be able to switch to another 0% card at the end of the offer, but you can’t guarantee this, and you could get stuck paying high interest.

Many people use these types of credit card to buy larger items, such as new furniture, electrical items, holidays or consumer goods.

Compare 0% purchase cards

Find a credit card with an interest free period for purchases.

Do the 0% interest credit cards have any fees?

Some of these 0% purchase credit cards charge an annual fee. You will need to work out whether the fee is worth paying in order to enjoy a lower interest rate. You will also need to think about how you will pay off the balance on your credit card when the 0% interest period ends. Otherwise, you may find the standard interest rate reverts to anything from 20% to 30% when the introductory period ends.

Although 0% interest credit cards are cheaper and simpler than taking out a personal loan, you will get a credit limit based on your personal circumstances. For borrowing higher amounts, you will usually need to consider a loan instead.

How much money can I borrow cheaply on my credit card?

Credit card credit limits are often lower than you could get when taking out a loan. But if you're making one or two one-off expensive purchases and can manage your money carefully, they can work out a lot cheaper.

For example, you could get a 0% purchases credit card to pay for a train season ticket, which would save you money instead of paying for a monthly ticket, or use it to buy something and then pay it off in affordable monthly instalments.

You might think there's nothing cheaper than borrowing at 0%, but 0% purchase credit cards are time-limited, so watch out for when the high rate of APR kicks at the end of the interest free period.

The best way to get the most out of a 0% purchases credit card is to use it to purchase something at the start of the offer period. Then put a plan in place to pay it back in instalments over the entire course of the offer period.

Money transfer credit cards

There's also the option to transfer money from your credit card to your bank account, which you can then spend or use to pay off debts.

With a 0% money transfer credit card this is a relatively low cost and straightforward option, compared to setting up a personal loan, or borrowing against the value of your house. However, it does come with some costs, usually a percentage of the transfer amount.

You can withdraw money from your credit card and move it to your bank account using your credit allowance. It's best to use a money transfer credit card to do this rather than an ordinary credit card, because the charges will be lower.

Money transfer cards are similar to balance transfer credit cards, which allow you to pay off debts from other credit cards at 0% interest.

A money transfer credit card allows you to transfer money to a bank account, whereas a balance transfer card does not.

It is critical you are completely certain what fees (if any) come from using cash from a credit card. While some may allow you to transfer the money from a credit card to a bank account online for no cost, withdrawing money from your credit card at a cash machine is usually a completely different matter. You might be hit with a cash advance fee, and interest may accrue on that withdrawal immediately, meaning you could end up paying a lot more for that cash than you took from the cash machine.

You can find out more with our guide on how to transfer money from credit card to a debit card.

Personal or unsecured loan

Personal, or unsecured, loans are offered against your credit score. You can borrow anywhere between £1,000 and £50,000 for terms anywhere between one and ten years.

You can find out more about loans and discover how to compare them with our guide.

Personal loans typically have one of the lowest interest rates of any short-term method of borrowing money, except for interest-free credit cards. You will need to apply for a loan and if you have a poor credit record you're unlikely to get the best deals.

Indeed, to get the very best APRs, you will need excellent credit, and loans are relatively inflexible with fixed monthly repayments and set loan terms. This is a good reminder that having good credit history can benefit you for years to come so if your credit is not in good shape, now could be the time to fix it.

Personal unsecured loans usually work out cheaper than bank overdrafts, but more expensive than a mortgage. However, mortgages aren't designed to provide small short-term loans.

Bank overdraft

Using your bank account's overdraft facility is rarely the cheapest option for borrowing money. However, some banks offer an interest-free buffer as part of an arranged overdraft, which can be the best option for very short term borrowing.

Banks used to offer attractive arranged overdraft fees, and then charge far higher interest rates on unarranged overdrafts. However, a rule change in April 20202 means they are no longer allowed to do this. 

Now, interest on all overdrafts has to be charged at a single rate of APR. This typically ranges from 19% to around 40%. Before using your overdraft, check what the rates are and whether another form of credit would be cheaper.

Remember, your overdraft is not guaranteed and can be withdrawn at any time.

Can I get a cheap loan from my bank?

Give your bank a call and ask about their loan options. Check if they will offer you a preferential rate, as you have been a loyal customer. If not, then consider moving bank – some may give you a better loan deal to encourage you to switch your current account over.

It can pay to be loyal, but it can also work in your favour to regularly shop around for cheaper deals.

What is the best way to borrow money for the long term?

Loans for longer or larger borrowing

If you're looking to borrow more than £5,000 cheaply, there are other options available. You could opt for an unsecured personal loan or you could considered a secured loan, which might have a lower interest rate.

What is a secured loan?

secured loan is one where you put an asset up as collateral, most often, but not always, your home. It’s different from a mortgage. If you have a very high mortgage and only a small amount of equity in your house, then it may be difficult to add a secured loan to your outstanding debt.

While personal unsecured loans can offer low rates when borrowing smaller sums, where you want to borrow larger amounts over a long period, then you might consider a secured loan.

The drawback of secured loans is that you will be securing the loan against an asset, so if you can’t afford to pay it back you could lose it. As most of these loans are secured against property, this means you could lose your home. If you feel more than confident of paying it all back, then it can be a sensible way of borrowing higher values at lower rates.

For example, you might want an extra £20,000 to invest in renovating your home – which could help increase the value of your home in the future.

On the other hand if you're looking to consolidate debts, or if you don't have the security of extra income, or credit to help pay back a secured loan, then it's a more risky option.

The amount you’ll be able to borrow will depend on the value of the asset you put up as security. Many people use secured loans when they don’t have a good credit rating, as they can still get a relatively good rate – but be sure to assess your own suitability before filling out an application, as the risks are quite high with secured loans.

Secured loans, second-charge mortgages or 'homeowner loans' could be a handy way to borrow large amounts at a potentially lower rate, as the loan is secured against your property.

The different ways to borrow money

A different approach to finding a cheap way to borrow money might be to ask your mortgage provider if you can extend your mortgage. You could also consider remortgaging to find a cheaper rate. Find out more about remortgaging here.

How to extend your mortgage

Your home could be worth more than you paid for it. This means your lender might let you increase the amount you borrow - enabling you to borrow money at a lower rate than a personal loan. However, the mortgage repayments will be spread over a longer term, meaning that you will pay interest for longer and more overall.

If you want to find out whether you can increase your mortgage, you should talk to your current lender. Find out if there are any fees or penalties for changing your current mortgage deal. Ask what set-up or arrangement fees you might have to pay for the new mortgage. Make sure you can afford the repayments, and think about whether you want to have a bigger mortgage for longer. You can check the best deals on mortgages with Uswitch.

How to get the best deals on a remortgage

Remortgaging is when you take your existing mortgage deal and look for a new one. You can do this is you are nearing the end of a fixed rate mortgage deal, or if you are on a variable rate mortgage with no tie-ins for leaving early. You will also need to remortgage if you are moving home, although some lenders allow you to port your mortgage to your new home.

Remortgaging your house could mean that you find a new mortgage with a lower interest rate. This could save you money each month, freeing up funds to pay off debts or for other projects. Alternatively, you could apply to increase your mortgage in order to borrow some extra money for a home improvement project, for example. You can shop around for the best remortgage deals with Uswitch.

Make sure you can afford the monthly repayments and think about whether you really want to take on a bigger or longer mortgage.

Compare 0% purchase cards

Find a credit card with an interest free period for purchases.