Credit Card Borrowing

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Borrowing money on a Credit Card

One of the easiest ways to borrow money of a financial institute is to use a Credit Card, available from all banks, building societies, and other financial organisations. The choices available for Credit Card are enormous, with a wide variety of interest charges, annual charges, loyalty schemes, and bonus points available. However there are two broad areas for credit cards that you should look at:

Low Interest Credit Cards

Firstly if you do not intend to pay off your Credit Card bill at the end of each month, then you should look at the Annual Interest Rate (APR), this rate is typically between 13-17% at the moment (Easymoney [from EasyJet] offer 13.9% at the moment), and you should be looking for a card that offers as low an interest rate as possible. You should also bear in mind that Credit Cards charge much higher rates of interest than other forms of borrowing money, so if you do not intend to pay of your bills for a long period of time, then you should seriously consider a different form of loan that is less expensive.

Paying off your Credit Card Bill

On the other hand if you do intend to pay off you credit card bill/loan at the end of each month, then you should be more interested in the benefits / loyalty schemes that are on offer. These vary from being awarded points every time you purchase something (these points can than me used to purchased gifts or air miles etc), to simply being given 'Cashback' on everything you buy (typically 0.5%-1% of your purchase, Accucard offer 0.8% for example). You should also look at the level of service that your credit card company offers. The credit card companies are obliged under law to offer certain protection to the consumer, but often they will increase this protection with other guarantees. Some credit cards offer extended warranties on electrical goods, extra travel insurance when you are on holiday, accidental damage insurance for any goods you buy, and even free commission on cash withdrawals when abroad.

Credit Card Annual Fees

Also some credit card companies charge an annual fee for using their card (especially business credit card accounts), so these fees should be weighed up against the cards benefits.

Interest Free Credit Cards

Even if you usually do pay off your credit card bills at the end of each month, when you open a new credit card account you may be offered 6 months interest free credit (Easymoney). This is often an excellent way of saving money as you are basically given an interest free loan for 6 months. It is even more useful if you are allowed to transfer some credit card debt from a different company into the interest free credit offer.

Credit Card Debt

However there is a danger of becoming trapped in a bad debit cycle here, transferring your debt from card to card until it is completely unmanageable. The best advice is to make sure you always have enough money in the bank, or in a savings account, to pay off your credit card debt when you are taking advantage of the interest free credit period. That way you benefit from earning interest on your savings in your bank, but as soon as the interest free credit period has expired, you can pay the entire debt off without being stung for high interest charges.

Credit Card Theft

As a final note, when using a credit card you should be aware that if it is stolen, or your details compromised in some way, then someone can easily run up a large bill on your account. In nearly all cases the credit card company will be liable for these fraudulent use of your card (often the first 50 pounds is your liability however), however it is worth reading the article on 'credit card security tips' to help avoid this hassle.

Summarising Credit Card Advice

If you are not paying off your monthly credit card bills, look for a credit card that offers a low interest rate If you are paying off your monthly credit card bills, looking for additional card benefits Interest free credit periods (Easymoney offer 6months) are good news for saving money, but beware of being caught in a debt spiral Credit Cards are an expensive way of obtaining a loan or borrowing money, and you should investigate other cheaper forms. All of which are summarised in the 'Loans and Borrowing' article.

Best Buy Credit Cards

Check out the table below for the current Best Buy Credit Cards, as researched by MoneyExtra