Affordable credit

Better borrowing

From time to time we all need access to a money loan. We might need the money for an emergency house repair, the replacement of a vital appliance such as a washing machine or something that we have planned for such as a holiday, car or simply paying for Christmas. Of course it is better if we can save money and therefore have money available for emergencies, but this is not always possible.

The truth is that most people spend far more time thinking about what they are going to spend the money on rather than thinking about how much the actual loan will cost them above and beyond the initial amount that they borrow.

We are surrounded by advertising from regulated, legitimate lenders: banks, building societies, on-line lenders, pawn shops and credit unions. You will even find retailers whose business it is to sell you an expensive item such as a television or 3-piece suite via a credit (or finance) agreement, allowing you to pay a fixed amount over a period of time: They are also regulated money lenders.

By law if they encourage you to take out a loan with them they have to give you an indication as to how much a loan will cost you by publishing their Annual Percentage Rate or APR on the advertisement. However many people fail to spot it, understand it or bother to compare it with the cost of other loans.

The easiest way to understand APR is to think of it as the additional number of pence (interest) you will pay on top of every pound (100 pence) that you borrow if you were to repay that loan over a year. The table below is based on borrowing £100 and shows you the total amount of interest that you would pay back in addition to the £100 that you have borrowed:

Loan arranger Typical APR Interest payable (cost of loan)
Credit union 25% £25
Credit based retailer 70% £70
Doorstep lender 300% £300
Online payday lender 1250% £1,250

As you can see borrowing £100 could cost you many times more than the £100 you borrowed in the first place.

At present you will see banks offering generally larger loans at a “typical APR” that is much lower than the APR’s in the table above. However the term “typical” means that only 51% of those applying will be offered that rate. However if you have a good credit rating you may qualify and should consider looking more closely at such offers as they may suit your needs.

If you are considering borrowing money for any purpose it is worthwhile reading the rest of the information in this section and on The Money Advice Service website:

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