Christmas is fast-approaching and the credit crunch is seeing cash-strapped consumers offered types of loan and credit that they might not have come across before - some of which should be avoided at all costs. We’ve taken a look at the worst ways to borrow
Hard-pressed consumers are relying on potentially dangerous forms of borrowing to meet everyday
spending demands, new research shows. According to price comparison site uSwitch.com, more than
423,000 consumers use credit card cheques to put cash into their bank account. A further 300,000
people have resorted to using them to pay utility bills.
And with the credit crunch taking its toll on the nation’s finances, banks are increasingly
introducing new - and potentially dangerous - ways for us to borrow. We uncover the five most risky
ones.
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1: Credit card cheques
Issued by your credit card company, credit card cheques can be used to pay for something when
you don't have cash and you can't use your card. Although it may sound good, this is an expensive
way to borrow as lenders treat the money as a cash advance - and charge higher interest rates.
Barclaycard charges a massive 31.23% APR on money spent on credit card cheques while other
credit card companies including Halifax, Bank of Scotland and Abbey all charge more than 27%.
The trouble is many borrowers don’t realise this. uSwitch found that 86% of credit card
customers who use these cheques don’t know what the correct fees are. Customers are typically
charged a handling fee per cheque plus an APR. And, unlike normal purchases, the cheques don’t
qualify for the normal interest-free period of 56 or 59 days.
Louise Bond, personal finance manager at uSwitch.com, says: "It is both alarming and
concerning that so many consumers believe these cheques are ‘friendly freebies'. There are huge
fees and interest rates associated with using them, which consumers need to be more aware of -
particularly if they are using them to pay household bills or consolidate any debts.”
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