Do you need credit?

Credit nearly always costs more than you will earn from investment and savings. Defer purchases where ever possible until your job position is clear.

If you need credit, think again before you become overdrawn on your current account or take out a personal loan. Increased competition means that there are some good deals available and different credit options.

Consider carefully how much you can afford and how much you are able to repay each month. If you choose to repay over a longer period of time, the monthly payments will be lower, but the final amount that you repay will be more. If the interim rate is variable, then allow for fluctuations in the amount you repay each month.

The APR (annual percentage rate) is a figure used to compare different credit deals. Generally the lower the APR the better the deal, but before taking out any loan always get a full written quotation of how much it will cost you over the whole repayment period.

Check if you can repay the loan early. You may be asked to repay some of the interest that the lender expected to get over the duration of your personal loan. With a credit card or overdraft, you can decide how much your repayments will be and over how long.

Think about insurance, should you become ill or made redundant and are not able to meet the repayments.

With a number of credit agreements the Consumer Credit Act allows you to cancel within 5 days of signing. Check before you sign to make sure that you can cancel.

Credit cards

Most have an interest free period of up to 56 days on your purchases. You can chose to repay the bill in full and pay no interest or pay a minimum amount each month. Shop around and find a card with no annual fee and a guaranteed lower APR for a fixed period. Some cards offer a low, balance transfer APR while others fix the balance transfer APR until the balance has been paid off. Credit cards are good for short term borrowing and offer protection should your purchase prove to be faulty or a retailer goes under.

If you are a member of a Trade Union, take a look at the TUC's credit card programme. There is a new scheme, 'Members First', in conjunction with the Bank of Scotland. There are two types of card, and no fee is charged for their use.

Charge cards

These allow higher spending but repayment must be made in full each month.

Gold cards

These can be credit or charge cards and can have higher credit limits and annual charges than normal cards but can be quite flexible.

Overdraft from your bank

An authorised overdraft on a current account that does not charge fees is an excellent way to borrow small sums. Take care not to run up an unauthorised overdraft, this can be expensive.

Personal loan

For this type of loan your repayments and the interest rate are fixed. Some companies offer flexible loans where you can repay a minimum amount each month.

Secured loan

With this type of loan you use your home or some other asset such as a suitable insurance policy to secure a personal loan or increase the amount that you have borrowed from your mortgage lender. These loans are usually quite flexible with lower interest rates, however beware that you could be at risk of losing your home if you fall behind on repayments.

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