Cheap Credit Card Loans Manipulate plastic to get a 6.9% loan

The cheapest credit cards can substantially undercut the cheapest loan rate for certain amounts, and allow totally flexible repayments.

This is a step by step guide to manipulating your card into acting like a loan, letting you borrow for as little as 6.9% - way cheaper than the top standard loan; and overpay or underpay without penalty.

Picking the perfect method

The method needed to get a plastic personal loan depends on what you want to do; some are simple, others require a bit of playing about.

It ain't what you do it's the way that you do it

• To cut the cost of existing credit card debts.
  
  This is easy, it's what credit cards balance transfers are designed to do. Done right credit cards can spank the bottom of loans, they're simply much cheaper than the method in this guide, which would cost more if used to pay off existing credit card balances.
  
  For full details on this including the best deals, read the Best Balance Transfers article.
• To make a big one-off purchase, or range of purchases.
  
  Providing the vendor will accept a credit card, the easiest way to do this is simply to buy whatever you need on a card that has the longest 0% rate for purchases. In other words it's interest free on debts from spending, though you must make at least the minimum repayments. Alternatively you could get a lower rate credit card. Here are some best-buys:
  
• Top interest-free cards for spending on are Nationwide* at 0% for 18 months (must be a Flexaccount holder, after it's 12.9% representative APR), M&S* at 0% for 15 months (followed by 15.9% representative APR), then Tesco* at 0% for 15 months (then by 16.9% rep APR). For full details of best buys see the 0% for Spending guide.
  
  Of course once the 0% period ends the rate will shoot up, so ensure you've repaid in full or are ready to Best Balance Transfer to a new card.
  
  If you want a long-term lower rate card Sainsbury's* is 6.9% representative APR, though you need to be an active Nectar card holder. Ensure you treat it as a loan and make even repayments to ensure it's paid off in a set time frame. For full details and more options see the 0% for Spending guide.
• For a cash lump sum / paying retailers that don’t accept credit cards / to cut the cost of existing loans.
  
  There’s a lot of things that fit in this category from buying a new car to paying back a friend you owe money to.
  
  To do this cheaply we need to get clever and use credit cards with a special feature. It's a tad more complex, but can really make big savings. If you're concerned about this or find finance difficult, you may be better off clicking to the more straightforward Cheapest Loans article.
  
  Those looking to try and make their existing loans cheaper should first read Cut the Cost of Existing Loans, as it isn't always simply a case of getting a lower interest rate to make it cheaper. Sadly penalties can mean it’s not worth switching - that article has a calculator to help you work it out.
  
  Yet if you’re willing to put the work in, you can make serious savings. Please read the whole of this article in detail though, and ensure you understand it correctly before proceeding; a mistake can cost you big.

Turn a credit card into a loan

Contrary to common myth, the best credit cards are much cheaper than loans, even for long term debt; so if you want to borrow, they’re the cheapest way. Of course the worst credit cards are an abomination, so this does assume you’ve an adequate credit score to get the cheapest products.

The challenge: Get a lump sum in your bank account, at a cheap rate.

Credit cards have different interest rates for different types of transactions; yet by far the cheapest rates are offered for balance transfers, which is when debt is shifted from another credit card. Don’t ever simply withdraw cash on a credit card; do that and you’ll pay a fortune in interest.

Yet a select few cards have an extra transaction type: money transfers, where cash can be shifted straight into your bank account, so you now owe that amount to the card (read full Super Balance Transfers guide). If these are coupled with low interest rates, then it's one of the cheapest ways to borrow.

The simple route: Use a Virgin card

First and foremost, a huge warning... many cards allow you to pay cash into your bank account; the difference is most charge a fortune for it. The key to a super balance transfer is that you’re charged the special promotional interest rate. So, to get this, never ever withdraw cash and never try and spend on the credit card. Instead, just ask the card provider to...

"Do a balance transfer to my current account"

This way you'll get the cheap balance transfer deal, and the cash will end up in your bank. For double surety, you can even explain exactly what you think will happen, and get them to confirm it. Don't use the term "super balance transfer" as that's a term I've coined and unless they use this site the customer service rep won't have heard of it.

Also, it's crucial you set up a direct debit to make AT LEAST the Minimum Repayment each month; if not you’ll lose the special deal and pay the 15%+ APR on all debts. Though it's massively preferable to pay more than this, so the debt is cleared by the end of the intro deal.

Which cards let you do this?

You have two main choices, a 0% card which will be overall cheapest, but MUST be repaid before the interest free period ends else you'll face big costs, or a longer-term low rate card which still beats normal personal loan rates in the long run.

You can compare these options using the 'what's the equivalent interest rate?' calculator below.

Virgin 20 months 0% with 4% fee

• 0% Balance transfer length & Fee: 20 months, 4%
• Rep. variable APR: 20.9% (Official rate Example)
• Card issuer: Mastercard
• Min. Repayment : Greater of 1% of balance plus interest, or £25
• Any restrictions? N/A
• Min. Income: N/A

The Virgin* card gives you 0% for 20 months on money transfers made in the first 60 days, for a one-off fee of 4%. After this the rates jump to 20.9% representative APR.

It's crucial you make sure the balance is all paid off (or switched to top Balance Transfer card) by that point - always best to organise it slightly in advance - else the interest will rocket and you'll have lost all the 'cheap loan' goodness.

The 'What's the interest rate?' calculator

To compare the cost of borrowing a lump sum on a credit card to a bog standard personal loan, pop your numbers into the calculator and it'll reveal the total interest and fees you'll pay, plus the equivalent of this cost as an APR. Then compare it to the best personal loan you could get.

Remember, if you borrow more after the initial lump sum, this will change the calculation entirely. Always work out a proper payment plan to make this as cost effective as can be (see below for the full technique).

Ensure you pay off the card like a loan

The one final difference between a loan and a credit card is loans have ‘structured repayments’; the repayments are fixed so you’ll clear the debt in a set time. Thus to truly replicate the enforced discipline of a loan you need to repay a fixed amount each month.

Simply pay the same amount you would’ve done if you’d got a standard loan, though as the interest is lower you’ll actually clear it more quickly. If you don’t know how much, just get a quote from any lender.

You also have the advantage of flexibility

The magic of this particular solution is you now have the flexibility of a credit card for your debts. Therefore you could…

• Pay off less a month.
  
  This may sound good, but it means you will take far longer to clear the debt and pay much more interest. If you do use this option, only do it for a short term, not permanently. However if you're focusing on repaying other higher interest debts more quickly, then it's a good thing.
  
  Do remember though, you will always need to pay the card's minimum repayment, usually 2% to 3% of your outstanding balance. This may mean you have to pay a little more in the first few months.
  
  Again though, let me reiterate, don’t just stick to the minimum as that can cost a fortune; the more you pay the quicker you’ll be debt free and the less interest you pay (see the Danger: Minimum Repayments article).
• Pay it off more quickly.
  
  The opportunity to overpay a loan without penalty is great, it means you can throw more cash at the debt to get rid of it more quickly and pay less interest.

Think before adding the 'insurance'

Payment protection insurance is commonly sold with credit cards - the idea is it'll make some payments for you, usually for a year, if you are unable to (eg, if you lose your job).

There have been a myriad of cases where it has been missold eg, borrowers didn't realise they were signing up for it, or it was totally unsuitable for them, and some big lenders have been fined.

The protection isn't always bad, though policies sold with cards are often overpriced (you pay a monthly amount depending on the size of your balance). If you want it, compare the lender's cover with standalone providers such as Paymentcare or Best Insurance.

Always be vigilant to check you aren't getting more than you bargained for when you fill in the application, then check your statement each month to check you aren't inadvertently paying for extras if you didn't ask for them.

One final warning

Even at a long term 6-7%, avoid spending on a long term debt card. The lender will put any repayments towards the most expensive debts first, which is a good thing. However it'll take even longer for you to totally pay off the card.

If you do need to spend on a credit card, use a totally different card altogether (see Best Card for Spending).