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Credit where it’s due
If
you’ve run out of cash by the time you move, credit can come
to the rescue. We give you the low-down on your options
Once you’ve paid your legal
fees, stamp duty on your new home and the set-up costs for your
mortgage, you may not have much left to buy those things that will
turn your house – or flat – into a home. This is why
many people turn to credit when it comes to buying furniture and
domestic appliances.
Credit is a fact of life for many people these days, but if you
are careful and make sure you can afford your monthly repayments,
you should be able to keep yourself out of trouble. There are several
avenues open to you if you need to take out credit. We run through
your options.
Store cards
Store cards can be very tempting, but they are rarely
good news. When you go shopping, you may be offered a discount off
your purchases if you open a store card account – an offer
that can be hard to refuse. But unless you can afford to clear your
bill each month, you’ll end up paying over the odds for the
credit because of the high rates of interest charged on many store
cards.
If you do go down the store card route, remember that some providers
charge a different interest rate if you pay each month by direct
debit. For instance Allders charges 26.8 per cent APR for those
who pay by direct debit and 29.8 per cent for those who don’t.
Store cards are expensive – there’s no getting away
from it. Watch out for the following culprits: Comet Yourway charges
a whopping 29.9 per cent APR if you pay each month by standing order
and 31.9 per cent if you don’t. Debenhams charges 29.9 per
cent if you don’t pay by standing order, while Bhs, Habitat
and Ikea all charge 29 per cent. Laura Ashley, Russell & Bromley,
Kwik Fit and Country Casuals all charge 30.7 per cent if you don’t
pay by standing order.
More reasonable cards are available. A good-value store card is
available from John Lewis and Waitrose. Both charge 6.5 per cent
for the first six months and 13 per cent thereafter. Fortnum &
Mason charges 15.3 per cent, while Liberty and Marks & Spencer
both charge a slightly higher 18.9 per cent.
Store credit
Another option is store credit, which, again, can be tempting
because it enables you to take away the goods there and then. There
are different types of store credit available. Some work like loans,
where you pay off a set amount each month until the debt is cleared.
You usually have to put down a deposit and interest will be charged
on the outstanding balance. This can be handy as it means you can
take out a small amount of credit and won’t be tempted to
run up debts as you can with a store card. It also means that you
have to be disciplined about repaying the debt, unlike with a store
card where you can get away with making the minimum payment each
month.
But beware of being charged over the odds. Often the less you borrow,
the higher the interest will be. Many stores will tempt you in with
offers of interest-free credit. These deals can be good as long
as you stick to the agreement. If you fail to pay back the debt
in the agreed time, you may be charged interest at a high rate on
the full amount. And make sure you are not paying over the odds
for an item you could buy more cheaply elsewhere, just for the sake
of interest-free credit.
Credit cards
Most of us carry around at least one credit card these
days, and they can be handy for making home-related purchases as
long as you are disciplined enough to repay your debt. If you don’t
have a credit card and would like to take one out, then look for
one that charges 0 per cent introductory rate. This rate is normally
charged for the first six months, so make sure the rate you pay
after that – the annual percentage rate (APR) - is a reasonable
one. If you’ve got enough spare cash each month you may be
able to repay your debt before the introductory period ends.
If you have a card that charges a high APR, it may be worth transferring
any debt you have to a 0 per cent card. But again watch out for
the APR and make sure you choose a card with a reasonable standard
rate. Some cards don’t charge you anything on your balance
transfer but any new purchases may be charged at the standard APR
rate.
Personal loans
You can borrow between £500 and £25,000 as
a personal loan and can choose to pay it back between one year and
eight years, depending on where you get your loan. The less you
borrow, the higher the rate of interest you are likely to be charged.
If you decide to take out a personal loan, you could try your bank
but some can be more expensive. For example, HSBC charges 17.8 per
cent on loans between £500 and £1,900. Loans between
£2,000 and £2,990 are charged at 16.9 per cent. NatWest
charges 20.9 per cent on loans between £1,000 and £2,950
and then 15.9 per cent from £3,000 up to £4,950. Alliance
& Leicester, however, charges a very competitive rate of 6.9
per cent for loans over £5,000.
Loans are also available from building societies and insurance companies
– and now even supermarkets will loan you cash. Sainsbury’s
Bank and Tesco, for example, both offer good deals. On a loan of
£5,000, Sainsbury’s Bank charges 7.6 per cent and Tesco
7.9 per cent. British Gas charges 6.7 per cent on loans between
£5,000 and £14,999; Direct Line charges 6.2 per cent
for a loan in the same loan bracket. Leeds & Holbeck is as competitive.
The best-buy loan is from Northern Rock, which charges just 5.9
per cent on loans of £5,000 to £25,000.
It really is down to you to decide how to pay for the things you
need. Credit cards do offer good value if you get a 0 per cent interest
period on taking it out – although you do need to be disciplined
and try to pay off more than the interest each month. Or, if you
do need to kit your entire home out, a personal loan could be better
for you over the long term.
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