As credit card cheques get a thumbs down from the government - we explore three cheap ways to borrow cash...
Almost every month it's the same. I get my credit card statement only to find myself fighting through reams and reams of extra paper - the majority of it taking the form of credit card cheques.
Marketed as the easy way to pay-off other debts or make purchases, credit card cheques are one of the worst ways you can borrow money.
This is because cheques are treated in the same way as cash advances, and not only will you have to stump-up a fee to take out the money in the first place, but the interest rate you have to pay can be as much as 30% APR.
Considering most credit cards charge around 16% APR - and you can get 0% cards that charge nothing at all - this is a very expensive way to borrow.
Cheques are also an easy target for thieves and don't come with Section 75 protection, which entitles you to a refund if, for example, the company goes bust (although this can also present problems).
Unlike credit cards, which usually don't start charging interest until a reasonable period after your monthly bill arrives, credit card cheques hit you with higher interest costs from day one.
Fortunately, the government recently outlined plans to ban credit card cheques as part of a major crackdown on high-risk lending. Neil Faulkner explains more about the government's proposals here.
So, it's clear that credit card advances are bad, but what if you need to borrow some short term cash?
Here are three ideas:
Money transfers
Believe it or not, there is one way to borrow from your credit card that doesn't rack up high charges.
This involves a special type of balance transfer, sometimes known as a 'money transfer', which provides a flexible way of moving cash from your credit card to either a bank account or loan.
By moving money this way, your funds also qualify for any promotional 0% balance transfer deals available when you first take out the card.
All MBNA credit cards, including the market leading Virgin Money MasterCard offer this facility, although you'll have to pay a slightly higher fee of 4% to get your mitts on Virgin's cash.
MBNA's Platinum Visa offers 0% money transfers for a cheaper fee of 2.9%, although you'll have to settle for a shorter promotional transfer period of 12 months, while Egg's Visa card charges 3%, and lasts 13 months.
Remember, you must move the cash as a money transfer - and not by withdrawing it from a cash machine in order to benefit from a 0% deal. Do this, and you could get a nasty shock when you open your statement at the end of the month.
Current accounts
Switching current accounts is another way to get access to free borrowing. With several banks vying for your business, there are some juicy 0% deals if you're willing to switch.
For example, Alliance and Leicester offers a 0% interest free overdraft of up to £2,000 for 12 months on several current accounts.
Until Thursday, you can also bag £100 if you open an Alliance and Leicester Premier or Premier 50 current account. Read more about the deal here.
Sister bank Abbey also offers 0% on overdrafts up to £5,000 for 12 months. Both accounts are subject to a credit check, and you won't be able to take advantage of the deals if you've banked with either institution during the past three months.
Borrowing the Zopa way...
If none of these options appeal, you could always try Zopa. This innovative business let's you borrow from other people, instead of from a bank. You can apply for amounts from £1,000 to £15,000, over a period of three or five years.
Lending criteria are stringent, and Zopa says you'll need to have a better credit record than most of the population to qualify for a loan.
In return, Zopa can be a great way to borrow a relatively low amount, and the lender currently offers a typical APR of 8.2% on a £5,000 loan over 36 months - although this does rise to 13.9% typical APR on smaller loans from £1,000. You also get the added bonus of being able to pay the loan off early without any repayment fees.
One other avenue worth exploring is Abbey loans, which offers one typical APR of 8.9% on all loans from £1,000 to £25,000. With most lenders offering tiered rates, and higher APRs for lower amounts, Abbey's flat rate system is a welcome move for those wanting to borrow less.
Despite interest rates falling to record lows, borrowing continues to be expensive. So, when searching for that extra cash, make sure you consider some of these cheaper options - or you could end up paying more than you bargained for.
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