Credit cards are not traditionally the first option you should consider when you are thinking of taking out a loan. However, they do have their place and are worth considering as an option, especially to get insurance cover on large purchases.
One advantage of using a credit card is the protection provided by Section 75 of the Consumer Credit Act. If what you buy is never delivered or is damaged or doesn't work, you can make a claim against your credit card provider as they are held 'jointly and severally liable'.
Also, it is not uncommon now to need a credit card in order to book certain services, for example car rental or hotel reservations Some providers insist on holding details of your card, and in fact clear some credit ( eg, £1000), in case you damage the car, or run up unpaid mini bar bills!
For straightforwad borrowings, credit cards should be the last port of call as they are notoriously expensive. However, if you are thinking about borrowing a relatively small amount for example, £500, you might find that interest rates on an unsecured loan of this size are comparatively high. It could be that using a credit card with a long interest free period to make your purchase is a financially viable option.
The key to making this work is calculating how much you have to pay each month in order to clear the debt before the end of the interest free period; and having the discipline and financial wherewithal to stick to the repayments.
With interest rates typically upwards of 16% at the end of the interest free period, any benefits following this approach will quickly be lost if you haven't cleared your balance. Also, avoid cash advances; providers often charge 2% or 3% to take cash from your credit card. Similarly, when you use your card abroad, you are likely to pay a non-competitive conversion rate.
One other point to be mindful of is that getting the credit card in the first place will be dependent on your credit history. Be careful when using comparison stites as each search to find rates can be logged against your credit rating, making it look to a prospective lender than you have approached every lender in the high street. It can be worth talking to a professional about how credit cards fit in with your overall financial plan. If you wish to speak to an LGBT-friendly financial adviser about this or any other aspect of your finances, please enter your postcode under the map on your right, to find an adviser near you.
Read about the how the new rules on withdrawing money from your personal pension affect you,
Stamp duty is being abolished in Scotland and is going to be replaced by a new land transaction tax. Find out what you need to know about this change.
Journeys on the Underground and Beyond is a new collection of poetry and images from Alex Fan Moniz
© Copyright LGBT Finance Limited, 10 Melville St. Edinburgh, EH3 7NS