You don’t have to feel bad for bor­row­ing

The Jewish Chronicle - - Business -

THE ADAGE “nei­ther a bor­rower, nor a lender be” is no longer fit for pur­pose. Un­less you are su­per-rich, you will need to bor­row to buy a house or go to univer­sity. The key is learn­ing when and how to bor­row. If it is a planned pur­chase and you keep the amount to a min­i­mum, do a bud­get to en­sure you can af­ford re­pay­ments, pay it off as quickly as pos­si­ble and en­sure it is as cheap as you can, then it is a rea­son­able choice. Here are the 10 things you need to know:

SPEND ON A CREDIT CARD AND CLEAR FULL TO GET A MONTH IN­TER­EST-FREE

If you need short-term bor­row­ing, use any ma­jor credit card (ex­cept Lloyds Ad­vance) to pay, then re­pay it in full at the next state­ment and there is no in­ter­est.

BOR­ROW AT 0% FOR 18 MONTHS WITH NO FEE

If you have a de­cent credit his­tory, con­sider a 0 per cent credit card deal. Only do this if you can al­ways fully re­pay or trans­fer your bal­ance be­fore the 0 per cent ends, or the rate you pay will rocket. Di­arise when the deal is due to end and act in ad­vance.

The long­est 0 per cent deals for new bor­row­ing are Tesco Club­card Card and M&S, which are both in­ter­est-free for the first 15 months. Na­tion­wide gives a longer 18 months, but only for its ex­ist­ing Flex­ac­count hold­ers. En­sure you pay off in full or you will pay 16.9 per cent, 15.9 per cent and 12.9 per cent APRS re­spec­tively.

BOR­ROW­ING IF YOU HAVE SAV­INGS MIGHT NOT BE BEST

£5,000 in a top sav­ings ac­count only pays around £125/year in­ter­est af­ter tax. But bor­row­ing that on an 18 per cent credit card can cost £900. So un­less you have su­per-cheap debts, it usu­ally pays to use the sav­ings in­stead of bor­row­ing. This can of­ten work with mort­gages too. See www.mse.me/ re­pay­mort­gage.

POOR CREDIT SCOR­ERS CAN GET 0% TOO, BUT TAKE CARE

Cap­i­tal One’s Bal­ance Card is 0 per cent un­til Novem­ber on shifted debts, how­ever it then jumps to a huge 34.9 per cent rep­re­sen­ta­tive APR.

Usu­ally, this should only be a route to cut ex­ist­ing debt costs. But as it is the only cheap deal for poorer credit scor­ers, if a pay­day loan is your only other op­tion, shift­ing ex­ist­ing debts to it to tem­po­rar­ily free up space on other cards beats that. Please be wary about this as it can eas­ily go wrong, En­sure you can clear it all be­fore the 0 per cent ends.

THE CHEAP­EST LOAN IS 6%

If you need big­ger bor­row­ing and want a fixed dis­ci­plined re­pay­ments, The Der­byshire charges six per cent for loans from £7,500 to £15,000. Sains­burys is 7.7 per cent for £5,000 to £7,500 for one to three years and six per cent over £7,500 for one to three years but needs a Nec­tar card. Be warned, these are “rep­re­sen­ta­tive APRS” so only 51 per cent of ac­cepted ap­pli­cants must get that rate. Oth­ers can pay more. Out­ra­geously, to find out your rate you need to ap­ply and that marks your credit file.

Plau­dits to Na­tion­wide’s 6.8 per cent APR (6.3 per cent for ex­ist­ing cus­tomers) above £7,500, as it tells you your rate with­out a for­mal ap­pli­ca­tion.

FLOG­GING UN­USED STUFF BEATS COSTLY LOANS

If you are look­ing at costly cards, or worse, pay­day loans, sell or even pawn un­used items to raise cash in­stead. Use www.mo­bil­e­val­uer.com if you are sell­ing an old mo­bile. Flog un­used stuff on ebay, Gumtree or at car boot sales.

FLEX­I­BLE LOANS

If you are over 26 with a de­cent credit score, peer-to-peer lender Zopa.com tri­umphs. It is cheap­est for smaller loans. Plus it lets you over­pay with­out penal­ties.

GOV­ERN­MENT 0% CRI­SIS AND BUD­GET­ING LOANS

Two Job­cen­tre 0 per cent loans for up to £1,500 are avail­able. Cri­sis loans are avail­able to any­one for real emer­gen- cies. Bud­get­ing loans are only for ben­e­fits re­cip­i­ents, but al­low spend­ing on a wider range of items. Sadly, each re­gion has limited cash avail­able.

FOR CHEAP SMALL LOANS PLAY WITH PLAS­TIC

If you need a lump sum, nor­mal credit cards can’t help. How­ever, Vir­gin’s Bal­ance Trans­fer Credit Card al­lows “money trans­fers” to your bank ac­count at 0 per cent for 20 months (20.9 per cent rep APR af­ter that) for a one-off four per cent fee. In other words, it pays the cash into your ac­count and then you owe it in­stead. Don’t try it on other cards — it will cost a for­tune and be very care­ful to fol­low the right process with Vir­gin. See www.mse.me/plas­ti­cloans.

AVOID PAY­DAY LOANS

While many rant about APRS of 5,000 per cent, that is not what scares me. The prob­lem is that many of these firms en­cour­age you not to re­pay, so the debt rolls over. Don’t risk it. Try your lo­cal credit union in­stead.

Fi­nally, for those who al­ready have debts and are strug­gling, free one-onone help is avail­able, and it works. The Con­sumer Credit Coun­selling Ser­vice, Cit­i­zens Ad­vice and Na­tional Debtline can all help.

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