BALANCE transfer credit cards and personal loans are two different ways to pay off debt, but the best option for you depends on your personal circumstances.
As always, there are risks with both so you should carefully consider your options before you apply for either of the two.
Balance transfer cards lets you shift your existing debt to a new card without paying interest so you can clear your balance more quickly and cheaply.
But the interest-free period varies depending between lenders, and some also come with introductory balance fees.
If you don’t manage to clear your debt in full, you’ll start paying interest on your balance or you can shift to another fee-free card when the offer expires.
Meanwhile, a personal loan lets you choose the amount you wish to borrow and the period of time you want to repay the loan over, and the interest rate is set accordingly.
You then make regular monthly repayments to pay back the full amount of money borrowed plus interest.
The risk with a personal loan is the extra charge you’ll get if you miss a payment.
Which are the cheapest deals right now?
The Sun has scanned the market for the best personal loans and balance transfer credit cards on offer right now based on different loan sizes, the pay-back time and APRs.
But as always, it’s important to work out for yourself how much you’d have to pay as it depends on how much debt you have.
You can then decide which product is right for you.
For the table below, we calculated the total amount repayable for the balance transfer credit cards by using Moneysupermarket’s credit card calculator, assuming borrowers don’t pay off the credit card debt before the introductory period ends.
If you cleared the debt beforehand or transferred the debt elsewhere, no interest would be added.
The cheapest deal right now is the Santander Everyday Credit card, which allows users fee-free balance transfers for 27 months before it increases to a typical annual percentage rate (APR) of 18.9 per cent.
Or if you just want the longest balance transfer offer, the best card would be the MBNA Platinum 33 Month Balance Transfer Credit Card, but this comes with a balance transfer fee of 1.99 per cent.
After 33 months, it also increases to an APR of 19.9 per cent.
This means that if you used this card for an initial £25,000 debt for 10 years, the total amount owed would increase at such a rate that monthly repayments of £208 would never be enough to pay it off.
This compares to a personal loan from Cahoot with an interest rate as low as 2.8 per cent, but if you have a poor credit score, you’re not likely to be given the marketed APR.
Instead, your best option for a loan of same size as Cahoot’s is one from Everyday Loans, according to data by Moneyfacts.
This comes with an eye-watering APR of 34.4 per cent, meaning after the pay-back time ends, you would’ve paid a whopping £19,388 on an original £10,000 loan.
What did the experts say?
The Sun has asked a couple of money experts about what borrowers need to think about when looking for a way to pay off their debt, and whether a personal loan or balance transfer credit card is the best option.
As you might expect, it comes down to your personal circumstances but also about your self discipline.
Andrew Hagger of Moneycomms, said: “With a personal loan you pay back the same amount each month by direct debit so [it’s] better for those who feel they need a bit of financial discipline – with a credit card it is down to you to make the payment and the amount isn’t set – it’s down to you to decide how much you pay.
“If you can, try and pay off your card balance within the 0 per cent promotional period otherwise you’ll need to switch again or face paying standard credit card interest of 19.9 per cent APR or more.
“A 0 per cent credit card is probably the best option for clearing your debt as personal loans for amounts of less than £3,000 tend to be quite expensive,” he added.
Loan shopping: what you need to be aware of
AS with credit card applications, when you apply for a loan a search will be left on your credit history – even if you’re unsuccessful.
If you’ve find the cheapest loan on offer, for example by using Moneyfact’s loan calculator, you should then check your eligibility.
Smaller loans sometimes come with higher APRs than if you were borrowing a larger sum – so in some cases it might be worth putting your spending on a 0 per cent or low-rate purchase credit card instead.
Before applying, make sure you work out what you can afford to pay realistically each month – and borrow as little as possible over the shortest length of the loan.
Only those with the best credit histories will get the headline rate – and only 51 per cent of successful applicants need to be offered the rate for providers to advertise it – so you will likely be offered a worse deal if your credit history is a little patchy.
Make sure you know what the penalty will be if you repay your loan fully before the term is up – it’s ususally between one and two months’ interest.
Rachel Springall of Moneyfacts said the same, but added that borrowers should consider both options before they commit.
But if you decide on a balance transfer card, you might also need to act quickly as several lenders have slashed the length of the interest-free periods recently.
“Highly competitive balance transfer credit cards have seen their lengthy 0 per cent terms shortened over the past year or so, largely fuelled by the FCA’s crackdown on persistent debt,” said Rachel.
“So, if borrowers want to take advantage of them, they must move quickly, ensuring that they stick to their set monthly repayments so that they stay on track to pay off the debt.
“It is worth remembering that only 51 per cent of successful applicants only need to be offered the advertised APR of an unsecured personal loan, so the rate seen at first glance right now is not guaranteed to be the same as the rate offered after the application process, nor the rate available moving into 2019.”
If you are interested in any kind of credit or loan, you should use an eligibility checker from the lender to work out your chances of being accepted without leaving a mark on your credit score.
If the chances are high, you can apply with confidence but if they aren’t that great, you can look elsewhere with no harm done.
Earlier last year, credit reference agency Experian also launched a new online tool, which means you’ll be able to see the real interest rates that some lenders are offering before you apply.
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