Borrowing Costs

Same amount. Four short-term products. Wildly different costs.
Short-term borrowing
★
The narrator

£1,000 borrowed is £1,000 borrowed. That's where the similarity ends. Put it on buy now, pay later and clear it on time and it can cost you nothing. Put it on a standard credit card and it might cost around £100. Let it sit in an arranged overdraft and the same £1,000 costs a great deal more. Same money. Same year. Very different bills.

18
You must be at least 18 to borrow. Credit cards, overdrafts, personal loans and buy now, pay later are only offered to adults, and lenders check that you can afford the repayments before they say yes.

What you'll do

  • Pick how much you want to borrow, between £200 and £5,000.
  • Pick how long you'll take to pay it back, between 3 months and 5 years.
  • Watch the four named short-term products compete on the same amount.
  • Read the insight panel: it explains what the rates actually do.
4Products
2Sliders
~5Minutes

Why this matters

Most people leave school knowing that borrowing has a cost. They don't know how much that cost varies. The difference between a sensible borrowing decision and a costly one is rarely how much you borrow. It's which product you borrow with, and whether you can meet the repayments. This sim makes that visible.

Same amount, four prices
Drag the sliders. Watch the bars compete.
18
Remember: you must be at least 18 to borrow. All four of these products are for adults only, and every lender must check you can afford the repayments before lending.
£200£5,000
3 months5 years
You're borrowing
£1,000
over 12 months
Cost spread across products
Cheapest: £0
Most expensive: £0
Total cost of borrowing, by product (illustrative)
What the bars are telling you

The big idea

Headline cost is only part of the story. Every credit product in the UK has to quote a rate. For borrowing, that rate is usually the APR (Annual Percentage Rate): the higher the APR, the more the borrowing costs over a year. Overdrafts are often quoted as an EAR (Effective Annual Rate). Don't confuse either with the AER (Annual Equivalent Rate), which is what a savings account pays you. APR and EAR are what you pay to borrow; AER is what you earn to save.

Interest can be fixed (the rate stays the same, as on most personal loans) or variable (it can move up or down, often following the Bank of England base rate, as on many credit cards and overdrafts). A rising base rate can make variable borrowing dearer.

And the cheapest headline rate is not always the right choice. Suitability depends on more than the rate: the fees, the term, the monthly repayments you can actually afford, the lending criteria you have to meet, the amount you need, and whether the debt is secured. Buy now, pay later is free only if you pay on time; a personal loan gives certainty; an overdraft is flexible but dear if you stay in it.

For context, you may hear about other products such as payday (high-cost short-term) loans and 0% balance-transfer cards. They are not in this core comparison, but the same rule applies: always compare the total cost and the terms, not just the advertised headline.