Borrowing money isn’t always the ideal solution to an unexpected financial problem, but for many it’s a modern necessity. While taking out credit is not automatically a bad thing – in fact, you could use it to your advantage in more ways than one – it can become an issue if you don’t choose the right type of credit from the right type of lender. Unfortunately, there’s no black & white answer to the question ‘which type of credit is right for me?’ as this depends entirely upon your situation, how much you want to borrow and what you want to borrow the money for.

This doesn’t mean that it’s impossible to work out which kind of credit is best for you either – as long as you look at it practically, there’s no reason why the right answer shouldn’t be easy to find. There are three main things to think about when looking at borrowing cash.

What is your credit rating like?

Your credit rating is likely to have a big impact on the type of credit you will qualify for, as well as the amount that you’ll be able to borrow. Checking your credit file is important for many reasons, but in this instance it can be a very handy way for you to work out which lenders are most likely to lend to you.

If your credit rating doesn’t look good (this could be if you’ve missed credit payments in the past, if you haven’t lived in the UK for very long or if you have never taken out any kind of credit) then you are unlikely to qualify for the lowest loan and credit card rates. If your credit score is particularly awful, then you may need to look into a high-cost secured loan of some kind (such as a logbook loan), but you should always approach this kind of thing with caution, as a failure to repay would mean your property (or car, in the case of a logbook loan) being seized in place of payment.

Knowing who is unlikely to lend to you is a good place to start. It will save you time as you won’t need to make applications for these lending products, and it will also preserve your credit rating, as you can be penalised for making too many applications in a short space of time.

Do you want low repayments or low overall cost?

When it comes to loans, the shorter the repayment term, the less you’re likely to pay overall. However, this also means that you’ll probably be paying more in instalments each month. On the flip side of this, a longer repayment term will mean cheaper monthly instalments but a higher amount payable overall. This may sound a little confusing, so here’s an example:

Say you want to borrow £3000 and you’ve found a guarantor lender who can provide you with this at 47.9% APR. You could pay this off over 1 year, in which case you’ll pay monthly instalments of £307.11, making the total amount repayable £3685.32. If you can’t afford to pay over £300 per month towards the debt however, you could choose to pay it off over 3 years instead. This would bring the monthly repayments down to a much more manageable £143.98. Although this repayment amount is smaller, it is paid over many more months. This means that the full amount you would end up paying is £5183.28. You need to think about what’s best for you – clearing the debt quickly but paying more each month, or taking your time with easier payments but ending up paying more as a result.

Is longer term doable for you?

When thinking about paying back your credit, doing so over a longer period of time could be very appealing, particularly for those who don’t have a huge amount of disposable income each month. It’s important to consider, however, the changes that may happen in your life during the loan term. If there’s a risk that you may lose your job, if you’re planning to have a child or if you’re set on buying a house during this time, then this could really affect your finances and therefore affect your ability to pay back the loan. Consider this carefully before signing up for a long period of time.