Retail finance: what are my other borrowing options?

Cost is one of the main considerations when committing to any big purchase, whether you’re buying a piece of jewellery or choosing a new sofa.

Buying an item outright is almost always the most cost-effective option, as you don’t have to worry about interest charges. However, using your savings or waiting until you have enough saved up might not always be a viable option.

That’s where borrowing money comes in. Access the funds you need to buy your goods or services sooner and spread the cost over a time that suits you.

There are a few borrowing options to be aware of, and each comes with pros and cons. By doing your research carefully you can make sure you opt for the right credit option for you and your finances.

In this article, we’re exploring the top three most common finance options when hitting the high street: retail finance, credit cards and personal loans.

Retail finance

Many retailers partner with a finance provider (such as Novuna Personal Finance) to offer point of sale credit to their customers. Flexible payment options make life easier for customers like you, so you’ll purchase then and there as opposed to seeking a similar product elsewhere.

The options you’ll likely see when shopping online or in-store are:

• Interest free finance: spread the cost of your purchase with no interest added to your repayments
• Interest bearing finance: you’ll pay a fixed rate of interest as part of your monthly repayments
• Buy now pay later: purchase what you want now and defer payment for up to 12 months. You’ll also have the option to settle in full without paying interest, though a small settlement fee may apply.

Credit cards

A credit card gives you the option to borrow money up to a maximum amount (your credit limit), either by making one large purchase or several smaller ones.

You’ll then repay the borrowed amount over time – either by clearing your balance in full each month (avoiding interest) or by paying a chosen amount monthly if you prefer a longer repayment period. You will be required to pay a set minimum amount off each month, though.

Personal loans

When you take out a loan, you apply to borrow a set sum of money from your chosen lender. You’ll then repay it over an agreed timeframe with fixed-rate monthly payments. Read more about how personal loans work here.

Key features of each product

Spending style

• Retail finance

If you have your heart set on a particular product or service from a retailer, you may wish to make the most of your retailer’s finance facility. This allows you to tailor a finance package based on purchasing a specific product or service.

You won’t receive the money from the lender when you take out retail finance. Instead, the retailer will get the funds directly from the lender, who you’ll then make your repayments to.

• Credit card

Credit cards provide flexibility, letting you borrow as needed up to your credit limit. This is ideal if you’re looking to purchase multiple smaller items.

• Personal loan

You can use a loan to buy almost anything. The money you borrow is deposited into your account to use how you like (though there are, of course, some restrictions). This gives you a bit more flexibility to use the funds for one large purchase or split them across multiple needs. Be mindful of overborrowing, though, to avoid paying unnecessary interest on excess funds.

Borrowing amount and term

• Retail finance

The terms of your loan will often be determined by the retail finance product you choose. For example, opting for interest bearing credit may allow you to borrow over a longer period, resulting in lower monthly payments. That said, choosing interest free finance over a shorter term will save you money in the long run.

• Credit card

You will only be able to borrow up to your maximum credit limit. However, there’s no ‘end’ date or set period of time in which you have to pay off your balance. This can offer greater flexibility.

• Personal loan

Different lenders offer different loan amounts and terms. Here at Novuna, you can apply to borrow between £1,000 and a larger amount of £35,000 and spread the cost between 2 and 7 years.

You may choose to spread the cost over a longer period of time to lower your monthly repayments, though be aware that you’ll pay more interest in total this way.

Application process and credit checks

• Retail finance

You’ll be able to apply in-store or online via your retailer. The application process is quick and simple, often providing an instant decision.

Each full application does involve a hard credit check, though many of our retailers offer a soft search option. This allows you to check your eligibility before submitting a full application, with no impact on your credit score.

• Credit card

Applying for a new credit card will involve a hard credit check. However, once you have secured a credit card you will be able to spend up to the max credit limit without needing to reapply each time you want to borrow. 

That said, your credit card utilisation - what percentage of your credit limit you are using - can affect your credit score, so be mindful of this before borrowing a large amount on your credit card, particularly if you don’t plan to pay it off by the end of the month. 

• Personal loan

Our online loan application takes just a few minutes to complete, giving you a quick decision and (if accepted) a personalised interest rate. While a hard credit check will be conducted when you make a full loan application, you can use our loan calculator to give you an idea of how much a loan could cost. Keep in mind that this is based on our Representative APR (the APR given to the majority of customers) and the interest rate you’re offered may differ.

Interest rates

• Retail finance

Access favourable rates, with 0% interest options often available when you apply for finance via your retailer.

You’ll be able to see online or ask in-store what finance options are available, and at what rate. If a retailer offers interest bearing credit, the APR offered will be pre-negotiated with the lender based on the product, loan amount and term. It won’t change based on your personal or financial circumstances.

• Credit card

Credit cards often carry much higher interest rates compared to other types of credit. According to Finder, the average credit card APR is 35.78%,  which can quickly add up if you continue to build your balance.

You can often avoid paying any interest on your credit card by paying off the balance in full each month. This is ideal if you want to borrow for a very short period of time but, if you want to spread the cost for longer, you will likely have to pay interest.

• Personal loan

The interest rate you’re offered is personal to you. The lender will make a decision based on your personal and financial circumstances, credit history, plus the loan amount and term you’ve applied for.

Those with excellent creditworthiness and affordability will be able to access the best rates, though if you have a less-than-perfect credit score it’s likely the APR you’re offered will be higher.

While you can use a handy tool like a loan calculator to get a rough idea of how much the loan might cost, this is based on the lender’s Representative APR, which reflects the rate offered to at least 51% of customers.

Monthly repayments

• Retail finance

Your monthly repayments will vary depending on the finance product you opt for. With both interest free and interest bearing credit, you’ll make monthly repayments for a set period of time until your loan’s settled.

Buy now pay later works slightly differently. You won’t make any payments during the deferred period, which may be up to one year. Then, after this period, you’ll start making your monthly repayments. If you have an interest bearing agreement, your monthly repayment will incorporate interest (including the interest accrued during the deferred period). You do have the option to pay off the full balance before the deferral period ends, though, to avoid paying any interest at all.

• Credit card

Credit cards are a type of revolving credit, so you can choose how much you pay off your credit card balance each month (as long as you always pay the minimum amount).

It is recommended to pay off the full balance each month, though, or you may incur interest on any balance carried over to the next month.

• Personal loan

Personal loans have one of the most straightforward payment plans. The interest rate is fixed, so you’ll pay the same amount of money each month until the end of your loan term – no surprises. Of course, you do have the option to make extra payments or settle your loan early too.

Deposit

• Retail finance

Depending on the retailer, you may be required to pay a deposit. This won’t be part of the finance agreement and will need to be paid upfront, so you’ll need to factor this in when working out your affordability.

• Credit card

Unless you’re only using your credit card to pay for part of a purchase, you’ll be able to pay for the full amount of your product or service (including deposit) on your credit card as long as the total sum does not exceed your credit limit.

• Personal loan

When taking out a personal loan, you can include extra funds for a deposit in the amount you apply for. You’ll receive the money in one lump sum so you can decide how to distribute it.

In summary...

Retail finance may be for you if…

• You’re comfortable with the APR offered, particularly if the retailer offers competitive rates or 0% interest
• You’re buying a specific item from a retailer, such as furniture, electronics or jewellery
• You want financing at the point of sale, bypassing a potentially lengthier borrowing process

A credit card might be a good option if…

• You’re confident you can pay off the balance in full at the end of the month to avoid paying interest
• You already have a credit card and need immediate access to funds without undertaking a separate finance application
• The card comes with a promotional 0% interest period, significant cashback or other rewards
• You want to borrow and repay more flexibly

A personal loan could be suitable if…

• The purchase is too large for retail finance or a credit card
• Your chosen retailer doesn’t offer a finance option
• You plan to use the loan for multiple expenses, not just one purchase
• You prefer structured repayments but don't qualify for retail finance

Factors to consider before borrowing

Consider your financial circumstances before applying for any form of credit. Only borrow money if you’re confident you can afford the monthly repayments. Missed or late payments may be recorded on your credit file and could impact your future borrowing power.  

Always check the terms and conditions of any finance agreement too to make sure you’re aware of any fees or charges that may come with your agreement (such as late fees or overpayment fees).

Follow us for more money guides

Find out more about how retail finance works, the benefits of a personal loan, and personal loans vs credit cards by bookmarking our blog.