If you are the kind of purchaser who has a low-interest rate credit card and you use it regularly, you may find that it is cheaper than taking out a personal loan. Some supermarkets are issuing credit cards at a lower rate of interest to some of the main banks and financial institutions. Sainsbury, for example, launched a Nectar Card club members only credit card with an APR of just 6.9%. Comparing that to a personal loan of, say, two thousand pounds it works out far cheaper to use the card. Here’s how: A bank will charge approximately 14.9% for a personal loan, meaning that if you take a two thousand pound loan over two years you will pay around ninety-one pound a month— £91.89 to be exact. The total interest payable over the two years is two hundred and five pounds. Compare that to the Sainsbury credit card and you will pay eighty nine pound a month and a total interest charge of just one hundred and thirty pounds. That’s pretty good, actually.

Another advantage to using a low interest rate credit card instead of taking a personal loan is that if you pay off the entire balance before the fixed term of a personal loan you will find that you will receive no penalty.

Charges

A bank will charge you more to pay off your loan in a shorter time. You wouldn’t think that paying something earlier would cost more money, but it does. The bank doesn’t like people to pay off the loans they take out before they are due to finish. Even though this would class as good practice it would seem that it would be better to reward people for paying on time or earlier, rather than penalizing them. The thing is, that by paying something early the bank loses the money that it would have gained if you had kept your loan to the very end of the term. If you decide that you get a lump sum available and want to pay it off, the bank will calculate how much interest would have been paid and still charge you that same amount.

Small Print

This is not always the case and not every bank does it and not with every type of loan, but you should read the small print when you decide to get a personal loan with your bank. Small print is something that most people will confess to never reading. After all, it is small, long and very boring and some schools of thought claim that it is that way exactly so that people will avoid it. The trouble is, by avoiding reading all the legal jargon, we end up signing our life away on something that we may later regret. Even if it is no fun to read, you should pay attention to any clauses or conditions. Credit cards do have their uses and they are flexible and handy, but there are always catches.