Loan expert advises on Xmas spending

Personal loans may be the better bet for Christmas shoppers who need to borrow to pay for presents this year, according to a report in the Daily Telegraph.

Whilst many may be attracted by short-term offers from credit card providers, personal loans may provide borrowers a cheaper way to pay off larger purchases.

Personal loan headline rates at around 5.5 per cent, as well as loans without repayment penalties, will give many credit cards a run for their money. Most credit cards have APRs of over 14 per cent, after the initial free purchase period is complete.

“Cards are easy but expensive and, given that most people spread the cost of repaying Christmas over a number of months, a low-cost loan without early repayment penalties fits the bill better than expensive short-term credit with lots of nasty catches,” said Richard Duvall, chief executive of online lender database Zopa.

However, shoppers have been warned to keep an eye out for expensive Payment Protection Insurance policies, which could dramatically add to the cost of a personal loan.

Morgan Stanley estimates that as much as a fifth of high street bank profits are made from the policies, and recent studies have suggested that the policies can push the APR of a personal loan beyond 20 per cent.

© Adfero Ltd

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