How to pay for Christmas

By HELEN LOVELESS, MAIL ON SUNDAY ENTERPRISE EDITOR
Updated:

 

UNLESS your name is Scrooge, Christmas is one of the most expensive times of year. Even people who planned ahead may need to find extra cash.

How you finance those shopping trips can make a big difference when it comes to repaying the money once the festivities are over.

According to figures published by accountants Deloitte & Touche, we spend an average of nearly £750 each buying Christmas presents. We looked at what it would cost to borrow £750 from different sources and to repay it over six months.

Personal loans: There are a huge range of loans on the market and finding the best deal can make a huge difference to your finances. Northern Rock's loan rate of just 6%, for phone or internet applications, is one of the best. After six months you would have repaid £763.18, compared to £825.42 for a standard 33.7% rate loan from Bank of Ireland - a difference of £62.74.

Many lenders add expensive payment protection insurance when they give you a quote, but you don't have to take it. Always ask whether it is included and then make up your own mind rather than letting the lender decide for you.

Bank overdraft: One of the easiest ways to borrow, but far from the cheapest. Watch out for high interest rates, especially if you bank with one of the Big Four. HSBC is the cheapest of the big banks, charging 14.8% for both authorised and unauthorised borrowing, but most banks will charge a heavy penalty if you go over the agreed limit. Lloyds TSB charges a punitive 29.8% for unauthorised borrowing. A quick call to your bank to extend your agreed overdraft limit could save a lot of money.

Doorstep moneylenders: If you need only a small cash loan and you don't have a bank account or your credit history is poor, then this could be an option - albeit an incredibly expensive one.

Provident Financial provides loans from as little as £50 and says the typical loan size is £200 repaid over 12 months. An agent calls each week to collect repayments. But the annual percentage rate (APR), which includes a charge for collection, is a massive 177%.

On this basis, borrowing £200 to be repaid over a year would cost you a shocking £438.04. Avoid it if possible or use only as a last resort.

Pawn shops: With a typical APR of around 85% borrowing cash through a pawnbroker is one of the most expensive options and should also be a last resort. Cheque cashing centres are another alternative if you need money in a hurry, but with an average fee of at least 10% of the value of the cheque, it will cost you dear.

Plastic cards: If the chances of you paying off your Christmas debt quickly are small, a credit card could be the best option for your budget. Avoid paying interest altogether by opting for one of the many cards on the market offering zero interest on balance transfers and new purchases. Egg, Sainsbury's Bank, RBS Advanta, Marbles and Nationwide all have zero% cards.

Don't be tempted to sign up for store cards. If you don't clear the balance you'll simply be ripped off. John Lewis is one of the cheapest at 13.9%, but most retailers charge closer to 30%.

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