0% cards have the most catches

Neil Faulkner reveals the dirty tricks used in credit cards, unsecured loans, secured loans and store cards that you need to watch out for.

Borrow for nothing. What could possibly go wrong?

The answer is: Lots. On the whole, it's the cheaper forms of borrowing that come with the most catches, as you'll see now.

Borrowing on a 0% card

Credit cards allow you to make purchases interest free if you pay off the balance in full every month. Some cards have introductory deals that allow you to make purchases interest free over longer periods: so-called '0% on purchases deals'.

Other cards come with balance-transfer deals, which allow you to transfer debts for an interest-free period, although this typically costs a 3% up-front fee. However, a 3% fee is more than 3% APR, as this article explains. This is just one way that credit cards can deceive us or trick us into paying more than we realise.

Credit cards can be the cheapest way to borrow if we use them correctly, but they also come with the most catches.

Read Beware these 19 credit card tricks to find out more.

Borrowing at 8% to 12% APR with a loan

Next we have unsecured personal loans. The cheapest right now are advertised at a little under 8% APR, although I explained in this article how the APR can be seriously manipulated, particularly if there is a compulsory payment holiday at the start of the loan.

Some unsecured personal loans charge over 20% APR, but 12% APR is the most you should consider paying on any form of borrowing without getting advice. If you're unable to borrow at 12% APR or less, you should consider other debt solutions first.

Some of the tricks loan providers use are similar to credit-card providers, such as atypical APRs, big penalties for small mistakes and over-priced protection insurance. A different trick is to decline your application and refer you to other lenders, which will pay the original lender a fat commission if you take up their much more expensive products with worse terms and conditions.

Another trick is an annual payment holiday, which will increase the interest you pay every single month until the end of the loan.

One particularly nasty trick that people aren't made properly aware of is that unsecured debts can still be secured against your home if the lender can obtain a court order, and this can lead to repossession of your property if the lender is able to obtain a second court order. The larger your total debt, the greater the risk of a repossession order being granted on an unsecured debt.

Despite these tricks, cheap, fixed-rate personal loans come with far less booby traps than credit cards. Read more

Borrowing at 13% APR with a secured loan

Secured loans are particularly expensive at the moment; almost all of them cost more than 13% APR. That by itself means you should seek advice before getting such a loan, but the nature and small print of these loans mean that you should seek advice regardless of the APR or overall cost.

These have all the catches of unsecured loans plus a few more. As well as the risk of your home being repossessed, secured loans usually have variable interest rates. You may think that means rates move up and down with the Bank of England's base rate. In practice, though, the rate rarely tracks the base rate down, but you should expect the interest rate to be raised when the base rate goes up.

Secured loans can also come with hefty early-repayment penalties, which can be as much as six months' interest.

Borrowing at 25%+ APR with a store card

You should never borrow on store cards unless you pay off the total bill in full every month, because the interest rates are nothing less than extortionate: over 25% APR, on average. That by itself is a dirty trick and hardly a reward for loyalty to your favourite shops.

Many of the store-card tricks are the same as credit cards, such as massive APRs, negative payment hierarchy and big penalties for small mistakes. You're also more at risk of over-spending at the store, because rewards encourage you to spend more. You're sometimes 'upgraded' to a credit card without asking, which I consider to be another trick, because that will also encourage more spending and leave you prone to a great deal more tricks.

On the whole, the cheaper the debt, the more tricks there are to be aware of. Before borrowing with any of these methods, make sure you read the articles I linked to and search our article archives if you need more information.

Remember that the more you borrow and the more debt interest you pay, the less stuff you'll be able to buy in your lifetime. Read more here.

Compare credit cards through lovemoney.com

More: Britain's worst savings accounts! | Great new cashback card