The cheapest ways to borrow for Christmas
Christmas is just seven weeks away and while kids across the country are beginning to get excited, grown-ups are all too conscious of the impending costs. Funding the festivities can make a Scrooge out of the best of us.
Let’s face it, we don’t all have the foresight, or the cash, to save in advance for Christmas. Many of us pay for all, or part, of it on tick.
But what is the best way to borrow for Christmas? Should you take a loan to cover the lot, pay for your pressies on your plastic or opt for your overdraft? (See: Make sure you do your homework and land the best personal loan deal)
Become a better borrower
There are many ways to borrow money and which is best depends on what you need. There’s no point using a sledgehammer to crack a nut by arranging a loan to buy an Action Man toy for example. Equally, if need to borrow a sizeable sum, your overdraft could be an expensive way to do it.
Stocking Fillers – up to £100
If you only need to borrow a small amount to help finish your Christmas shopping, your overdraft could be the easiest option. As long as you have an authorised overdraft you can slip into the red for a few weeks (until payday) and it shouldn’t be too expensive. In fact some banks, such as First Direct, offer an interest-free buffer of up to £250 for those who need short-term borrowing facilities.
If you need to borrow a larger amount over a longer period remember that overdrafts can be expensive, unless you have a current account that is specifically overdraft friendly, such as Alliance & Leicester’s Premier Current Account which charges 0% interest for 12 months, then 50p a day (capped at £5 a month).*
Christmas on credit – up to £1,000
If you don’t have money for presents, food, or decorations you may need to borrow up to £1,000, and a credit card could be your ideal option.
If you apply now you could get hold of a purchase credit card before Christmas, which offers 0% interest for a set period on all purchases made. Tesco’s Clubcard Credit Card is the best buy at 12 months interest-free followed by the Sainsbury’s Credit Card at 10 months. But remember that the interest rate will shoot up after the initial 0% period, when you revert to your provider’s Annual Percentage Rate (APR).*
If you already have a card you could buy all your Christmas goods on it now and then switch your debt to a balance transfer credit card, which gives you interest-free credit for a set period on balances you transfer (usually within three months). The best current deal is Virgin Money’s Credit Card which gives you 16 months interest-free credit, followed by the Santander Credit Card at 15 months. Again, remember you will revert to the higher APR at the end of the 0% period.* (See Confused.com’s tips on managing your credit cards)
Festive indulgence – £1,000+
What if you really need to borrow big this Christmas? Perhaps you are going on a luxury holiday, or buying your child their first car. If you need to borrow upwards of £1,000 a personal loan could be your best bet. The rates are low and you can pay off your debt over a term to suit you.
The best rate on offer if you want to borrow £5,000 is 8.8% from Sainsbury’s Finance, and if you need to borrow £7,500 Alliance &Leicester and Tesco Bank charge a market-leading 8%. *
It’s also worth considering low APR credit cards for bigger borrowing, as they can work out cheaper than a loan. The Barclaycard Platinum Simplicity charges 6.8% for example, but is only available to those with a minimum income of £20,000. Otherwise the Barclaycard Goldfish Credit Card at 9.9% is the next best available.*
However much you need to borrow during the festive season, give yourself an early Christmas present by shopping around for the best deal available.
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*Rates correct as at 3 November 2009
