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How to get a 0% 'loan' - if you need to borrow 

Debt is like fire - a powerful tool, but get it wrong & you'll get burned

Depressing news rang out at the start of this year - that 2019 saw a record number of county court judgments issued against people who didn't (or couldn't) repay their debts. News like this leaves us somewhat torn.

As we always say, if you can avoid borrowing, you should. If not, at least ensure it's budgeted for, affordable, repaid as quickly as possible, and you borrow as little as possible. If you can't afford it, don't do it. Whatever it's for, unaffordable debt will make life worse, not better. Borrowing is always best for planned one-offs, not supplementing your income each month.

However, we know many of you do feel the need to borrow - and if so, we want to make sure it's done right and done as cheaply as possible. And that means, where you can, paying NO INTEREST - ie, 0%, as then all your repayments clear the actual borrowing rather than just profiting the lender.

So if you're going to borrow, first ask: "Do I really need to?", then "Is this a planned purchase?" and finally "Have I budgeted to afford repayments?" If the answer to any of these is no, don't do it. If it's yes, read on...

Always use credit detective tools before applying to uncover YOUR best deal. Apply for a loan or credit card and it usually puts an application search on your credit report, which lasts a year. Too many of these can have a negative impact.  

To minimise applications, our eligibility calculators show you the card or loan you're most likely to be accepted for - without any credit impact.

Try them for: Loans | 0% Spending Cards | 0% Balance Transfers | 0% Money Transfers. They quickly reveal which out of almost all top deals you're most likely to be accepted for.

These methods are best if you're borrowing about £3,000 or less, as card credit limits above £3,000-£5,000 are tougher to get. 

1. If you can pay on plastic, use a 0% spending card to borrow at NO COST AT ALL - but ensure you're disciplined. There are no 0% loans, but there are 0% credit cards... so the trick is to turn a card into a loan. 

The easiest and cheapest way only works when borrowing for something you can pay for by credit card, eg, a washing machine (if not, skip to point 3).

Use the 0% Cards Eligibility Calc to see which your best card is, eg, the Sainsbury's Bank* up to 27mths 0% is currently the longest 0% period (it also gives Nectar points on spending). Or, there's MBNA's* up to 26mth 0% card, though the 0% is only on purchases you make in the first 60 days. Once you get a card...

i) Buy your planned purchase on it (nothing else - be disciplined).
ii) Never miss a min monthly repayment or the rate can shoot up.
iii) Repay within the 0% period and it's TOTALLY FREE.
iv) Be warned - fail to clear within the 0% time and the rate rockets (eg, both Sainsbury's and MBNA jump to 20.9% rep APR). See Top 0% Cards (APR examples).

Who should do this? Those who trust themselves to use the card as a one-off and make repayments before the end of the 0% period. If not, this can be a dangerous option, leaving you paying interest on a large debt.

2. Need a '0%' cash loan? Carefully see if you can get a 0% money transfer card. If you need actual cash, or to, say, pay off an overdraft, a few cards offer new cardholders 0% money transfers. Here, for a one-off fee, a card'll transfer cash to your bank account, then you'll owe the card.

Use our 0% Money Transfers Eligibility Calc to see what you can get. Eg, MBNA's* up to 24mths 0% money transfer fee is 2.99% (though some poorer credit-scorers may get 3.49%) of the amount shifted (so £30ish per £1,000). For longer, there's Tesco Bank's* up to 28mths 0%, with a higher 3.94% fee.

Once you have the card, do the transfer within the first couple of months. Then ensure you make the min repayments and clear the borrowing within the 0% period. Fail to do that and the rates soar (eg, MBNA jumps to 22.9% rep APR on money transfer debt and Tesco Bank to 21.8% rep APR). See APR Examples.

How does it compare to a standard loan? If you borrowed, for instance, £1,250 over 2yrs, done right the MBNA 2yr money transfer card fee would be £37.38. The market's cheapest loan for the same is 12.6%, costing £170 in interest.

Money transfers are complex, so make sure you understand exactly how they work first - read our full 0% Money Transfers guide.

Who should do this? Like 0% spending cards, these are also best for those who trust themselves to use the card as a one-off and make repayments before the end of the 0% period. If not, this can be a dangerous option, leaving you paying interest on a large debt.

3. If you're using a 0% purchases or money transfer card as a loan - a few key tips. With both methods...

- To TRULY replicate a loan, set up a monthly direct debit to repay a fixed amount which'll clear the debt before the 0% ends.
- Once you've done the planned spending, freeze the card in a bowl of water (yes, really, though put it in a sealed bag first). That'll ensure you aren't tempted to use it.
- If you really don't trust yourself with a credit card, don't risk it - a cheap loan may be a bit costlier, but safer. 

4. Looking for a loan to repay existing credit card debt? The cheapest way to do this is usually a balance transfer. That's where you get a new card that pays off debts on old cards for you, so you owe it instead, but at 0%. Our 0% Balance Transfer Eligibility Calc shows you top cards, incl deals with £20 cashback, and our Balance Transfers guide explains how they work.

This is for larger borrowing, as the issue with plastic is getting a big-enough credit limit. On £3k to £5k+ a standard personal loan becomes the prime option.

Yet loan acceptance isn't just about your credit history. Whether you can afford to repay is just as important, with your income a big factor. If lenders think you may struggle to afford to repay that amount, they'll reject you, even with a good credit score.  

Our Loans Eligibility Calc incorporates your credit history and affordability, showing your acceptance odds. When borrowing...

i) Borrow as little as possible.
ii) Repay as quickly as possible (longer borrowing costs more).
iii) Never miss a monthly repayment.

Here are the current cheapest loans. All are REP APR, which sadly means only 51% of accepted applicants need to get the rate - the rest can be charged more...

- For £3,000-£4,999, Admiral* is 8.2% rep APR, Hitachi* 8.5% rep APR.
- For £5,000-£7,499, Admiral* is 3.4% rep APR, Tesco* 3.5% rep APR.
- For £7,500-£15,000, Cahoot* is 2.8% rep APR, while Yorkshire*/Clydesdale Banks* and M&S Bank* are 2.9% rep APR.

See our Cheap Loans guide for more help and deals. Also see Rep APR Examples.

Who's this for? Loans are costlier than the card approaches above as you pay interest, but the key is the repayments are fixed, so you just set up a direct debit and repay. There's also less temptation to borrow more, which is good for those worried about their financial discipline.
 

• With personal loans, bizarrely, borrowing MORE can cost less. While generally you should try to minimise borrowing, a peculiar quirk means with loans sometimes you actually pay less by getting a slightly bigger loan. This happens because rates decrease at set thresholds.
  
  Eg, if you wanted to borrow £4,900 over 5yrs, the cheapest loan is 8.2%, so in total you repay £5,990. But borrow £5,000 and as the rate drops to 3.4%, the total repayment is £5,445. That's £545 LESS to repay - even though you borrowed £100 more.
  
  So if you're borrowing close to a threshold (£2,000, £3,000, £5,000 or £7,500), use our Loan Cost Calc to see if you're better off borrowing a tad more (assuming you're accepted for the advertised rate).
  
  
• You're not certain to get the rate on a loan - you are on many credit cards. While our Loans Eligibility Calc shows your odds of acceptance for each loan, only 51% of accepted applicants have to get the advertised rate - so in most cases you won't know for sure the rate you're getting.
   
  However, use our Credit Card Eligibility Calc and with many top 0% cards, which you can use as loans, you get more certainty, because the tool shows whether you're pre-approved for some cards. So as long as you've given correct info, you're 100% certain to get the exact deals specified (subject to ID checks).
  
  
• There's a RISKY way to give yourself a much longer 0% credit card loan. The longest 0% spending cards last for less than 30mths - relatively short compared to some loans. But simply shift the debt before the 0% ends to a no-fee balance transfer card and you can extend it at no cost.
  
  However, this of course relies on no-fee 0% transfer deals still existing when your 0% card ends, and your credit score still being top-notch so you're accepted. So only do this if you're prepared to take the risk and you have a plan to repay if it doesn't work out how you hope.
  
  

The options above are for new, planned borrowing. Yet some try to borrow their way out of debt. It doesn't work.

Do any of these apply to your existing debts?

- You can't meet minimum monthly payments.
- Your total debt is more than 1yr's salary (excl mortgage & student loan).
- You have sleepless nights or depression/anxiety over debt.

If so, don't borrow more - instead get free, one-on-one debt-counselling help from Citizens Advice, StepChange or National Debtline. And if you need emotional support, try CAP. 

They're there to help, not judge. The most common thing we hear after is: "I finally got a good night's sleep." Read inspiring stories in our Debt-Free Wannabe forum and see our Mental Health & Debt and Debt Crisis Help guides.

Over to Martin: "Billions of pounds have been paid out in PPI, and many have paid £100s in tax unnecessarily. So in next week's show, if you've had a payout, I'll show you how to get the money back - plus there's help for those stuck in the PPI queue. And then we run through the top ways to save for your children. PS: If you missed this week's debt special, click the link to watch it on the ITV Hub."