If you have to borrow money, it's important you do so as cheaply as possible.
Borrowing money is not a situation you ever want to find yourself in.
Sadly, sometimes it is unavoidable. If you find yourself in this situation, it's essential you minimise the cost of repaying the debt.
Here, we take a look at the various borrowing options available, using the sum of £5,000 as an example to illustrate the additional costs involved.
The cost of borrowing £5,000
The obvious place to start when borrowing a sum like this is a credit card. Your first option is to go for a 0% new purchases card.
So you could get one of these cards, buy an item that’s worth £5,000 with your new card, and then you won’t have to pay any interest on the resulting debt for up to 16 months.
Here are the cards offering the longest interest-free periods on purchases:
Just remember that the 0% period begins when you take out the card, not when you make the purchase.
Alternatively, you can spend the money on your existing card and then transfer it over to a balance transfer card offering an extensive interest-free period. The good news is that the leading balance transfer cards have even longer 0% periods than the new purchases cards. However, you will have to pay a fee to transfer the balance over.
Here are the five cards offering the longest interest-free periods on balance transfers:
The
problem with 0% cards is that 0% periods eventually end. And if you
haven’t fully paid off your debt by then, you’ll be clobbered by a
chunky interest rate – perhaps as much as 19%!
Of course, you could shop around for another 0% card at that point, but who knows what deals will be available – and who they will be available to – in a couple of years’ time?
Low interest
So you could instead go for a card that offers a low interest for life on both purchases and balance transfers. Granted, you’ll be paying interest from day one, but at least it’s a low consistent rate that won’t suddenly end.
Here are the best Low APR cards on the market today:
Personal loans
Another option is to go for a personal loan. The best interest rates tend to be for loans around the £10,000 mark, but you could still get good rates for a £5,000 loan, and the good news is that there is a price war currently going on in the personal loan market.
Here are the top rates for a £5,000 personal loan repaid over five years:
Social lending
Your final option is go down the social route and borrow via a social lending website. These sites basically cut out the banks, so you borrow directly from other people.
Potentially this can give you a better rate.
Right now you could borrow £5,000 at 6.7% via the Zopa website, which is pretty attractive. Just be aware that you’ll only be able to borrow via Zopa if you have an excellent credit rating. Indeed a weak credit rating could mean that any applications for a 0% credit card or even a personal loan will fail.
Sadly, the people who find it easiest to borrow are often the people who need a loan the least. Banks want to lend to people with sound finances, who may not need any extra cash.
The best way
For many people, the best way to borrow £5,000 will be via a 0% credit card because you won’t have to pay any interest at all.
But if you can’t borrow as much as £5,000 with a credit card, a personal loan might work better for you.
If you find you can’t borrow the money via any route, then you’ll either have to accept you can’t get the money or maybe get debt counselling if you motivation for borrowing is to pay off previous loans. You can get free advice from charities such as StepChange.
If you are able to borrow £5,000, well done! Just make sure that you make all your repayments on time, and maybe overpay if you can. That could save you interest in the long term.
Sadly, sometimes it is unavoidable. If you find yourself in this situation, it's essential you minimise the cost of repaying the debt.
Here, we take a look at the various borrowing options available, using the sum of £5,000 as an example to illustrate the additional costs involved.
The cost of borrowing £5,000
The obvious place to start when borrowing a sum like this is a credit card. Your first option is to go for a 0% new purchases card.
So you could get one of these cards, buy an item that’s worth £5,000 with your new card, and then you won’t have to pay any interest on the resulting debt for up to 16 months.
Here are the cards offering the longest interest-free periods on purchases:
| Card | 0% period (for purchases) | Notes |
| Tesco Clubcard Credit Card for Purchases | 16 months | Can also earn Clubcard points on all your spending |
| M&S Credit Card | 15 months | Earn M&S points every time you shop with your card |
| Halifax All in One MasterCard | 15 months | Also offers 15-month 0% period for balance transfers |
| Natwest YourPoints World MasterCard | 15 months | Earn points that can be spent at retailers including Amazon and M&S |
| Barclaycard 14/14 Platinum Visa | 14 months |
Alternatively, you can spend the money on your existing card and then transfer it over to a balance transfer card offering an extensive interest-free period. The good news is that the leading balance transfer cards have even longer 0% periods than the new purchases cards. However, you will have to pay a fee to transfer the balance over.
Here are the five cards offering the longest interest-free periods on balance transfers:
| Card | 0% period (for balance transfers) | Balance transfer fee |
| Barclaycard 25 Mth Platinum Visa | 25 months | 2.9% |
| Halifax BT 25 Month MasterCard | 25 months | 3% |
| Natwest Platinum MasterCard | 24 months | 2.9% |
| Barclaycard 24 Mth Platinum Visa | 24 months | 2.8% |
| Tesco Clubcard Credit Card for Balance Transfers | 23 months | 2.9% |
Of course, you could shop around for another 0% card at that point, but who knows what deals will be available – and who they will be available to – in a couple of years’ time?
Low interest
So you could instead go for a card that offers a low interest for life on both purchases and balance transfers. Granted, you’ll be paying interest from day one, but at least it’s a low consistent rate that won’t suddenly end.
Here are the best Low APR cards on the market today:
| Card | APR (Representative) |
| Sainsbury’s Low Rate Credit Card | 6.9% |
| Barclaycard Platinum Simplicity | 7.9% |
| Natwest Low Rate Credit Card Visa | 9.9% |
Another option is to go for a personal loan. The best interest rates tend to be for loans around the £10,000 mark, but you could still get good rates for a £5,000 loan, and the good news is that there is a price war currently going on in the personal loan market.
Here are the top rates for a £5,000 personal loan repaid over five years:
| Loan | Representative APR |
| Derbyshire BS Personal Loan | 6.4% |
| Hitachi Personal Finance Loans | 6.8% |
| Sainsbury’s Bank Standard Nectar Cardholder Loan | 7.0% |
| Clydesdale Bank Online Personal Loan | 7.1% |
| M&S Personal Loan | 7.1% |
| Santander Online Personal Loan | 7.1% |
| Yorkshire Bank Online Personal Loan | 7.1% |
Your final option is go down the social route and borrow via a social lending website. These sites basically cut out the banks, so you borrow directly from other people.
Potentially this can give you a better rate.
Right now you could borrow £5,000 at 6.7% via the Zopa website, which is pretty attractive. Just be aware that you’ll only be able to borrow via Zopa if you have an excellent credit rating. Indeed a weak credit rating could mean that any applications for a 0% credit card or even a personal loan will fail.
Sadly, the people who find it easiest to borrow are often the people who need a loan the least. Banks want to lend to people with sound finances, who may not need any extra cash.
The best way
For many people, the best way to borrow £5,000 will be via a 0% credit card because you won’t have to pay any interest at all.
But if you can’t borrow as much as £5,000 with a credit card, a personal loan might work better for you.
If you find you can’t borrow the money via any route, then you’ll either have to accept you can’t get the money or maybe get debt counselling if you motivation for borrowing is to pay off previous loans. You can get free advice from charities such as StepChange.
If you are able to borrow £5,000, well done! Just make sure that you make all your repayments on time, and maybe overpay if you can. That could save you interest in the long term.
No comments:
Post a Comment