Yesterday we learnt inflation's hit 0% for the second month running – so little surprise, borrowing costs are hitting all–time lows.
The whole point of the Bank of England's super-low interest rate policy is to discourage saving and encourage borrowing, in order to make people spend more, which boosts demand and the economy.
Yet what's important is you do what's right for you. Debt is like fire – it's a very useful tool, but get it wrong and you get burnt. Here are the eight need–to–knows...
1. Is it worth borrowing?
Unless you're a super financially savvy stoozer, only borrow if you really need to – it's far better to wait and save up for something instead. Most new borrowing falls into two categories...
- Just funding your ongoing lifestyle. This is the worst type as it means you're consistently living beyond your means and risk a debt spiral. Avoid it. Use the Free Budget Planner, stop spending and cut your cloth accordingly.
- For a needed, planned purchase. Eg, a car for a new job, or to pay annual car insurance as it's cheaper than monthly. Here you need to minimise the amount borrowed, repay quickly to keep interest costs down and ensure your repayments are comfortably affordable. If not, don't do it.
2. Test your credit-worthiness for free – will you get the best buys?
It all depends on your credit history – sadly, usually the only way to find out is to apply. Yet that leaves a footprint on your credit file, and the catch-22 is too many of those, especially in a short space of time, hurt future applications.
To fight back, we've built the free credit card eligibility calculator and loans eligibility calculator. These use a soft search (so you see it on your file, but lenders don't, so there's no impact) to show your percentage chance of acceptance for each top deal – thus showing how credit–worthy you are.
If the result doesn't look great, read 35 tips to boost your credit score.
3. BEST BUYS. 20 months 0% new borrowing credit card.
With no interest and no fee, this is without doubt the cheapest way to borrow, provided a) you can pay for the purchase(s) on plastic; b) you can clear the debt within the 20 months; and c) you follow the golden rules below.
|Use the 0% spending eligibility calculator to see your acceptance odds for each card|
|Card||0% lasts||Perks on spending||Rep APR after|
|M&S Bank*||19months||1 pt per £1 in store, £2 elsewhere||18.9%|
|Sainsbury's Bank*||19months||2 Nectar pts per £1 in Sainsbury's||18.9%|
|Santander 123*||23months 0% yet £24/yr fee (2)||3% cashback on fuel/rail (max £9/mth), 2% department stores, 1% supermarkets||16.5%|
|(1) You could be offered fewer months at 0%. (2) Refunded in year 1 for Santander 123 bank customers. Full help & options in Top 0% Cards (APR Examples).|
The 0% Spending Card Golden Rules:
- Ensure you repay (or shift the debt) before the 0% ends or rates jump.
- Pay at least the monthly min, or you'll lose special rates.
- Don't withdraw cash – it's not at 0% and can harm your credit score
4. BEST BUYS. Cheapest–EVER loans 3.6% APR.
If you can't pay on a card, need to borrow more or for longer, or want the discipline of fixed monthly repayments, personal loans win. Here are the current best buys for each amount (the Loans Eligibility Calculator shows which you've best odds of getting).
- £2,500–£2,999: Hitachi* is 8% rep APR. Or for this level and lower (and sometimes higher), try Zopa* and Ratesetter* – their rates are more bespoke, and they can be cheaper.
- £3,000–£4,999: Hitachi* is 7.8% rep APR – far cheaper than any other.
- £5,000–£7,499: Cahoot* is 4.6% rep APR, Hitachi* 4.8% rep APR.
- £7,500–£15,000: Sainsbury's is 3.6% rep APR for 1–3years* with a Nectar card (avail free) or 3.7% rep APR for 4–5years*. Next is M&S Bank's* 3.8% rep APR.
1) A 3.6% loan can charge you 20%. All loans are 'representative' rate, meaning only 51% of those accepted need get that rate. Our loans eligibility calculator can't tell you your rate – but the higher your acceptance odds are roughly, the more likely you are to be given the advertised rate.
2) Borrow more, pay less? As rates decrease the more you borrow, at the borders you can play the system. Eg, borrow £2,499 and the cheapest's 14.9%, borrow £1 more and it's 8%. As our loan cost calculator shows, on a 5 year loan you'd then repay £540 less. Keep the extra cash for repayments.
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5. BEST BUYS – 24 months 0% credit card loans.
For smaller amounts, if you need cash or are buying something you can't pay for on a card then the winner – for a fee – is a specialist 0% money transfer credit card.
Here, if you're an accepted new customer, you can get money paid directly into your bank, so you owe the card firm instead. MBNA* (eligibility calculator) offers 24 months 0% for a 1.94% fee and Virgin gives an extra year at 0% (36 months), but for a much larger 4% fee.
Ensure you clear the card by the time the 0% ends, or you'll pay 22.9% and 20.9% rep APR after, respectively. And never miss the minimum monthly repayments, or you can lose the 0%. Full help in Money Transfers.
6. BEST BUYS – 36 months 0% to cut existing credit and/or store card costs.
If you're borrowing to cut existing credit card debt costs, use a balance transfer, where you get a new card that repays these debts for you, but at a cheaper rate.
The full top picks are in Best Balance Transfers (APR Examples) – here are the headline 'new cardholder' deals, so if you already have one of these firms' cards, go for a different one. And crucially choose the card with the lowest fee in the time you can repay....
– Halifax* offers up to 16 months 0% for NO FEE (18.9% rep APR after).
– Lloyds* offers 28 months 0% for a one–off 1.5% fee (18.9% rep APR after).
– Halifax* offers up to 35 months 0% for a 2.7% fee (18.9% rep APR after).
– Barclaycard* is up to 36 months 0% for a 2.99% fee (18.9% rep APR after).
The 0% Balance Transfer Golden Rules:
a) Use the eligibility calculator to find your best acceptance chances.
b) Repay at least the set monthly min, or you can lose 0% rates.
c) Always clear the card or shift again before the 0% ends, or rates jump.
d) Don't spend/withdraw cash on them. That's not usually at the cheap rate.
e) Unsure what to pick? Use our Which Card Is Cheapest? tool.
7. Struggling? Are you eligible for a Government 0% loan?
If you're looking at horrid debts such as payday loans or store cards, these are a far better alternative. There's no credit check, but they will check you can repay.
– Local council support schemes: Typically for those in emergencies with no savings, these are administered by local councils, making it a postcode lottery as to whether support's available. Sometimes they’re grants not loans, or vouchers not cash (eg, for furniture, clothing). See full support schemes info.
– Budgeting loans: If you're on some income–based benefits, you could be eligible for a loan of up to £800 to help you meet essential living costs. See budgeting loan info.
– Alternatively, try your local credit union: These are small savings and loan mutuals, helping local communities. They usually lend from £50 to £5,000 – APRs are typically about 13% but can be higher (though they're capped at 42.6% APR). To find if you've a local union, see our Credit Unions guide.
8. In debt crisis?
If you can't meet your minimum repayments or aren't sleeping due to worry, read my Debt Crisis Help guide and get one–on–one not–for–profit debt counselling from Citizens Advice, StepChange or National Debtline– or, if you're struggling emotionally too, CAP.
These agencies are there to help, not judge. The most common thing I hear after is: "I finally got a good night's sleep." Read some inspiring stories in our Debt–Free Wannabe forum and also my Mental Health and Debt guide.
What the * means above
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You shouldn't notice any difference and the link will never negatively impact the product. Plus the editorial line (the things we write) is NEVER impacted by these links. We aim to look at all available products. If it isn't possible to get an affiliate link for the top deal, it is still included in exactly the same way, just with a non-paying link. For more details, read How This Site Is Financed.
Duplicate links of the * links above for the sake of transparency, but this version doesn't help MoneySavingExpert.com: , Barclaycard, Cahoot, Clydesdale, Halifax, Hitachi, Lloyds, M&S Bank, MBNA, Ratesetter, Sainsbury's Bank, Santander, Yorkshire, Zopa