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Credit cards trump loans for low-cost small borrowing
Rachel Springall

Rachel Springall

Finance Expert & Press Officer
Published: 12/01/2022

The average cost of a small loan has fallen sharply from this time last year, but a 0% credit card could still be the cheapest way to borrow £3,000 or less, new research shows.

Moneyfacts.co.uk has found that the average interest rate on a £3,000 loan taken out over three years is 14.3%, down from 15.4% this time last year. That’s the average though, and this rate would still cost you £661.90 in interest over the whole term of the loan. The cheapest unsecured personal loan currently is from Metro Bank, charging an APR of 4.9% with no fee. You would pay total interest of £226.68 over the term of this loan. But you could slash borrowing costs even further by using a credit card offering an interest-free deal.

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Longest interest-free term on credit cards in over three years

Consumers looking to clear their credit card debt by moving their outstanding balances to a 0% balance transfer card will find that the average interest-free term is the longest it’s been since November 2018.

In fact, year-on-year the average number of interest-free days available on a 0% balance transfer credit card has increased by 57 days, up from 520 days in December 2020 to 577 days this month. The last time the interest-free period was longer was when it stood at 580 days.

As well as this, transferring balances has become cheaper over the past 12 months, with the average balance transfer fee falling from 2.22% a year ago to 1.96% now.

A 0% balance transfer credit card is often popular with consumers looking to pay down their credit card debt as the interest-free period makes repaying outstanding balances cheaper and quicker.

As Rachel Springall, finance expert at Moneyfacts.co.uk, explained: “In the run-up to the festive season it seems credit card providers have made overhauls to their interest-free balance transfer offers, which could well be perfectly timed for borrowers looking to consolidate their debts and have more time to pay off their balance without incurring interest. 0% introductory balance transfer terms have lengthened, associated fees to transfer have fallen and there is more choice.”

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How to fund a buy-to-let renovation

Landlords have a responsibility to ensure that their properties meet the Government’s health and safety requirements, as well as being at a good standard to attract renters.

This means that buy-to-let (BTL) properties often need refurbishing and, according to a report published by Shawbrook Bank last month, 62% of landlords have undertaken refurbishments in the last 12 months.

Of these, 18% renovated more than one of their properties.

The majority of landlords surveyed by Shawbrook Bank found themselves out of pocket paying for the refurbishments, with 60% using personal savings or investments.

Although, using personal funds to pay for revamping a BTL property may be a good option, there are alternatives for landlords looking to renovate a BTL.

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Should you take out a loan to pay off your credit card?

During the recent lockdowns many consumers were able to use their unexpected extra disposable income to repay credit card debt, but for others the boredom of being housebound resulted in them racking up credit card debt.

As the end of the year approaches, now is the perfect time for those who have seen their outstanding credit card balances increase over the past 20 months to take steps to clear their credit card debt. For many a personal loan can be a good way to pay off credit cards, but this option is not best for all borrowers. Here we take a look at the benefits of taking out a loan to pay off a credit card debt and the alternative options available.

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Banks increase interest-free terms on 0% purchase cards

Online shoppers may want to consider using a credit card when buying expensive Christmas presents to ensure that their purchases are protected under Section 75 of the Consumer Credit Act, which protects items valued £100 to £30,000.

Under Section 75 the credit card company and retailer are both liable for any breach of contract or misrepresentation of the retailer, which makes it easier for consumers to apply for a refund if the products they have purchased do not meet the terms of the contract, for example they do not receive the product they purchased.

Although shopping on a credit card provides consumers with some extra protection when making purchases online and in-store, it is important to remember that credit card debt can quickly mount up, especially when interest is added, leaving consumers with a significant amount of post-Christmas debt.

One option available to consumers that can make managing credit card debt easier is a 0% purchase credit card. These cards provide an interest-free period on purchases, which means that no interest will be added to the debt on items bought during this period.

Over the past week, a number of credit card providers, including Barclaycard, NatWest and Royal Bank of Scotland, have increased the interest-free period on their 0% purchase credit cards.

For example, last week Barclaycard increased the interest-free period on its Platinum All-Rounder Visa by one month to now offer 0% interest on purchases for 22 months. This card is available to those aged 21 and over who earn a minimum of £20,000. After the interest-free period ends, it charges 21.9% APR.

NatWest, Royal Bank of Scotland and Ulster Bank also increased the interest-free period on their respective Purchase & Balance Transfer Credit Card Mastercard last week. All these cards now offer an interest-free period of 22 months, an increase from their previous 0% interest period of 20 months. The cards are available to those aged a minimum of 18, who earn at least £10,000 and who have a current account, savings account, credit card or mortgage with the bank. They charge 21.9% APR once the interest-free period ends.

Currently, the only card offering an interest-free term longer than 22 months on its 0% purchase credit card is Tesco Bank with its Clubcard Credit Card Purchases Mastercard. This card has an interest-free term of 23 months and is available to those aged 18 and over who earn a minimum of £5,000. After the interest-free period ends, it charges 20.9% APR.

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Recent News

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First open banking credit card set to launch

1st November 2021

The first open banking-powered credit card is set to be launched by Keebo, which aims to offer credit to those who would traditionally be rejected for a credit card

The first open banking-powered credit card is set to be launched by Keebo, which aims to offer credit to those who would traditionally be rejected for a credit card

Read More
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How would a base rate rise impact your finances?

21st October 2021

Many finance experts are predicting that the Bank of England will increase base rate in the coming months to help tackle rising inflation

Many finance experts are predicting that the Bank of England will increase base rate in the coming months to help tackle rising inflation

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How to prepare finances to cope with price rises

14th October 2021

In just two weeks’ time Chancellor Rishi Sunak will unveil the autumn budget, which could see more tax increases for UK consumers

In just two weeks’ time Chancellor Rishi Sunak will unveil the autumn budget, which could see more tax increases for UK consumers

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Contactless payment to increase to £100 next week

5th October 2021

On Friday 15 October contactless payments will increase to £100 from the current limit of £45. Contactless payments have more than tripled in the space of 18 months

On Friday 15 October contactless payments will increase to £100 from the current limit of £45. Contactless payments have more than tripled in the space of 18 months

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Most Popular Credit Card News

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Should you take out a loan to pay off your credit card?

23rd November 2021

During the recent lockdowns many consumers were able to use their unexpected extra disposable income to repay credit card debt

During the recent lockdowns many consumers were able to use their unexpected extra disposable income to repay credit card debt

Read More
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How to fund a buy-to-let renovation

30th November 2021

Landlords have a responsibility to ensure that their properties meet the Government’s health and safety requirements, as well as being at a good standard to attract renters

Landlords have a responsibility to ensure that their properties meet the Government’s health and safety requirements, as well as being at a good standard to attract renters

Read More
news icon
How would a base rate rise impact your finances?

21st October 2021

Many finance experts are predicting that the Bank of England will increase base rate in the coming months to help tackle rising inflation

Many finance experts are predicting that the Bank of England will increase base rate in the coming months to help tackle rising inflation

Read More
news icon
First open banking credit card set to launch

1st November 2021

The first open banking-powered credit card is set to be launched by Keebo, which aims to offer credit to those who would traditionally be rejected for a credit card

The first open banking-powered credit card is set to be launched by Keebo, which aims to offer credit to those who would traditionally be rejected for a credit card

Read More

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