Playing with fire

That’s why of all elements of finance, it’s the one that needs the most careful handling. Yet for those in the know, it’s possible to borrow without any cost whatsoever.

Here are my ten need-to-knows:

1. Is borrowing right for you? Debt isn’t bad, bad debt is bad. So think carefully whether you really need it. Can you save up instead or use existing savings?

Some will yell “neither a borrower nor a lender be”, but life isn’t clear-cut. Some people make planned purchases, for example, they’ve got a new job far from public transport, so need a loan for a car. Provided the loan and interest are minimised, and the repayments budgeted, it can be an enabling choice. Yet if you borrow willy-nilly to fill shortfalls in your monthly income, that’s usually a nightmare.

2. 18 months’ interest-free borrowing.

If you’ve a big purchase that can be paid by credit card, and can repay within 18 months, you can borrow totally interest-free with a 0 per cent deal.

Only do this if you’re sure you can fully clear before the 0 per cent period ends and make the minimum repayment each month (or you lose the 0 per cent deal).

The market’s longest deals are for new cardholders at Tescobank.com and Santander.co.uk at 18 months 0 per cent (18.9 per cent rep APR after), though Tesco’s advantage is it also gives reward points. If you need longer, MBNA has a card that’s 6.9 per cent until repaid on all purchases within 90 days (after that, they’re 16.9 per cent rep APR).

The real key is whether you’ll be accepted.

The way to find out is to apply, but that leaves a mark on your credit file. So use my Eligibility Checker at mse.me/eligibility, which shows cards that are most likely to accept you.

3. Cheapest loans 4.5 per cent APR.

If you can’t pay on a credit card, need longer, need more, or prefer the disciplined structure of fixed repayments, then the straightforward option’s a personal loan. Rates change daily – the best at time of writing are below. Updated list at mse.me/loans.

• Loans £7.5k-£15k: santander-products.co.uk is 4.5 per cent representative APR.
• Loans £5k-£7.5k: sainsburysbank.co.uk is 5.7 per cent rep APR.
• Loans £3k-£5k: sainsburysbank.co.uk is 12.4 per cent rep APR
• Under £3k: There are no cheap loans – see points 4 and 5 below.

Remember, these representative APR loans mean only 51 per cent of accepted applicants must get the advertised rate. Others can pay more.

4. 29-month 0 per cent “loan” for a four per cent fee.

Buying something you can pay for on a card, or want a cheaper loan for smaller amounts? A few specialist credit cards allow accepted new customers cheap “money transfers”.

This means the card pays money directly to your bank account (that you can spend), so you owe it instead. Mbna.co.uk is 29 months 0 per cent for a four per cent fee and Fluid.co.uk is 28 months with four per cent fee. More help at mse.me/moneytransfers.

Always pay at least the minimum monthly repayment and schedule repayments to clear the card by the time the 0 per cent ends, or you’ll pay a big 22.9 per cent rep APR.

5. Peer-to-peer loans.

Try to repay most loans early and you’re charged penalties, but there’s a penalty-free alternative. Peer-to-peer lending sites match people who want to borrow with those who have cash to lend.

The rate you get depends on your credit score, but unlike normal loans, you can check without it marking your file. The two biggies are zopa.com and ratesetter.com, which can be about nine per cent APR on £2,500 for good credit scorers compared to cheapest standard loans at 14.9 per cent rep APR. Full help at mse.me/peertopeer.

6. Length counts.

Many people focus only on the interest rate. If you borrow longer, the interest is added year after year. So the shorter you borrow for, the better. Those who shift credit card debts to their mortgage should consider this: 18 per cent repaid over three years is cheaper than five per cent repaid over 20.

7. In hardship? Are you eligible for a Government 0 per cent loan?

If you’re desperate, these interest-free loans are far better than payday loans. There’s no credit check, though they will check you can repay.

• Local council support schemes: Previously called “crisis loans”, these are administered locally, so sadly whether you can get one is a postcode lottery. They’re for those with no savings in emergencies.
• Budgeting loans: If you’re on some incomebased benefits, you could be eligible for a loan of up to £1,500 to help you meet essential living costs. You can apply online at Gov.uk/budgeting-loans or via local Jobcentres.

8. Try local credit unions.

If you’re looking for smaller loans, check if there’s a credit union near you. These are small savings and loans mutuals, helping local communities.

They usually lend from £50 to £3,000, with APRs usually about 13 per cent, but can be higher. You can locate the ones near you at Findyourcreditunion.co.uk.

9. Set up a direct debit to protect your credit score.

Forget or make late repayments and you risk a fine, losing your 0% deal, and a black mark on your file. An easy tip’s to set up a direct debit to cover at least the monthly minimum, then pay more on top manually.

10. Debt to avoid.

While I’m never gung-ho about borrowing, some debt is better than others. Particularly dangerous types include high cost credit (including payday loans). With APRs up to 6,000 per cent, these are the loans to avoid.

Store cards are the devil’s debt. These are credit cards locked to one store, but with higher 25 per cent-plus APRs. If there’s a decent discount, use it, but pay it off in full each month.

Lookout for lego workshops

THERE are kids’ Lego workshops every month for six to 14-year-olds. The workshops are free and the kids can take home freebies, including spacecrafts and dragons (worth £5-ish). At 14 Lego stores – find your nearest at shop.lego.com/en-GB/MiniBuilds

Donate to charity

YOU can make a free 50p donation to Prostate Cancer UK by simply answering five questions at menunited.prostatecanceruk.org. Enter details, and Keyline will donate 50p to the fund.