Most people do not start by choosing a loan product. They start with a need: a car that has failed its MOT, a home repair, a short gap before payday, or a big purchase they have been planning for months. The type of credit that fits depends a great deal on which of those situations you are in.
V5 Solutions has organised this guide around common borrowing needs, explaining which types of credit tend to fit each one and the drawbacks to consider. First, though, it helps to understand one key distinction.
Secured or Unsecured: The First Question
Unsecured credit is based on your promise to repay, backed up by your credit history and income. Personal loans, credit cards, overdrafts and most buy now pay later plans fall into this group.
Secured credit is tied to an asset. A homeowner loan uses your property, and a logbook loan uses your vehicle. Because the lender has security, these products can sometimes be available to people with weaker credit records, but the asset is at risk if repayments are missed.
If You Need a Small Amount for a Short Time
Options: an arranged overdraft, a credit card, a credit union loan or buy now pay later.
An overdraft can bridge a short gap, though daily interest makes it unsuitable for longer periods. A credit card can suit someone who can clear the balance quickly. Credit unions are community-based, not-for-profit lenders whose interest charges are capped by law, which often makes them one of the lower-cost options for smaller sums. Buy now pay later can spread the cost of a single purchase, but multiple plans can become hard to track, and missed payments may lead to fees and credit file marks.
Short-term payday loans are also available but tend to be among the most expensive forms of credit. Our article on logbook loans versus payday loans compares the two.
If You Are Planning a Larger Purchase
Options: an unsecured personal loan, or a 0% purchase credit card for those who can clear it within the offer period.
Personal loans give you a fixed sum, a fixed term and predictable repayments, which suits planned spending. Rates are usually tied closely to credit history, so applicants with a strong record tend to be offered better terms.
If Your Credit History Is Limited or Damaged
Options: a guarantor loan, a credit union loan or a secured loan.
A guarantor loan relies on another person agreeing to repay if you cannot, which places a serious obligation on them. Credit unions often take a more personal view of applications. A secured loan, such as a logbook loan, focuses more on the value of the asset and your ability to repay.
V5 Solutions lends £1,000 to £50,000 secured on a car, van or motorbike, over 18 to 60 months. Decisions are based on the vehicle's value and affordability rather than credit score alone, and you keep driving the vehicle throughout. Our logbook loans page explains the details and shows the representative example. These loans are an expensive way to borrow, and the vehicle can be repossessed if you fall behind.
If You Need Money for an Emergency
Before borrowing, check whether the cost can be reduced or spread without credit. Energy suppliers, councils, landlords and employers may offer hardship support, payment plans or advances. If borrowing is still necessary, weigh how quickly you need the money against the total cost, and avoid committing to repayments you are unsure you can meet.
Comparing Your Options Fairly
Whichever route you consider, compare like with like:
- Look at the total amount repayable alongside the monthly payment.
- Check whether the interest rate is fixed or variable.
- Find out what happens if you repay early or miss a payment.
- Consider the impact on your credit file and, for secured loans, on your asset.
Our guide to APR and interest rates explains the figures you will see on a quote. This article is general information, not financial advice. If you are already finding repayments difficult, free advice is available from National Debtline and MoneyHelper.
Your car may be repossessed if you do not keep up repayments on a loan secured against it.
