This article will inform you of the different types of borrowing that may be available to you.

There are four main different ways to borrow money from banks and they can all be tempting, especially to students who often struggle with finances. However, it is imperative that if you do decide to borrow any money other than your student loans you understand what you are getting yourself into and that you know you will be able to pay it back soon.



Overdrafts are the most common type of borrowing that students use. A bank overdraft is linked to your current account. It allows you to withdraw more money than you have in your account. You can arrange a limit with your bank in advance; this is known as an authorised overdraft. It’s important that you keep within this limit. If you go over the limit this is called an unauthorised overdraft. Banks will usually charge very high fees for an unauthorised overdraft, and these fees will quickly build up.


Credit Cards

Credit cards allow you to pay for items in shops etc. You pay the card company back later, there is normally a minimum monthly repayment, and interest applied to the balance. You will be given a credit limit by the card company which is the maximum you can spend on the card. If you go over this limit you will have to pay extra charges.


Store Cards

Store cards are credit cards which can be used in specific stores. They tend to charge even higher rates of interest.


Personal Loans

Most banks and building societies offer personal loans which you pay back over a fixed term of one to seven years. Repayments are usually monthly (1-7 years) and are paid by direct debit. The interest can vary depending on your individual circumstances.


Borrowing Fees

Whatever credit you take out will normally mean you have to pay back more than you borrowed (except for interest-free options such as student overdrafts). The costs will vary from lender to lender, so it is important to shop around and make sure you can afford the repayments.  The Interest on any form of credit  is just a way to describe how much more you have to pay back than you borrowed. Normally interest is described as a percentage of the amount borrowed.


Annual Percentage Rate (APR)

All lenders have to tell you the APR of any product they are offering, so you can compare different lenders' rates fairly. The APR tells you the overall cost of the product for a year. The APR takes into account the interest charged plus any charges or fees you have to pay and also the frequency and timing of repayments.

You can use APRs to compare the real cost of different credit and loan offers, although it works best if you are comparing similar types of credit over the same time period. In general, the lower the APR the cheaper the deal. Your lender must tell you the APR on a loan or credit deal before you sign up.