Introduction
Households that are feeling the squeeze from the high cost of living crisis can find relief in the form of interest-free or cheap loans. While having an emergency fund is ideal, it's not always feasible for everyone. If you do need to take out a loan, it's crucial to find the cheapest rate to avoid accumulating high interest charges that can worsen your financial situation. Let's explore some options.
1. Interest-Free Overdraft
Some banks offer interest-free overdrafts as a buffer for unexpected expenses. First Direct provides a £250 interest-free overdraft, while Nationwide's FlexDirect current account offers 0% interest for the first 12 months. However, it's important to check the terms and conditions and be aware of the interest charges if you exceed the limit.
2. Credit from Retailers
Many stores allow customers to spread the cost of their purchases, offering 0% interest on orders over a certain amount. For example, SCS, a sofa company, offers interest-free credit for purchases over £320. Keep in mind that applying for this type of finance involves a credit check, and it's only useful if you're making a specific purchase.
3. Buy Now Pay Later
Buy now pay later (BNPL) options allow you to delay payment for a purchase. Payments are typically made weekly or fortnightly over a short period, and there are no interest or fees involved. However, late payment charges may apply if you miss an installment. Providers like Klarna offer various payment plans to suit your needs.
4. Interest-Free Credit Cards
Some credit cards offer 0% interest for a specific period, allowing you to make minimum monthly repayments. Be cautious not to exceed your limit and ensure you understand the terms and conditions. Barclaycard and M&S Bank currently offer the longest interest-free credit cards on the market.
5. Interest-Free Help with Mortgage Repayments
The Support for Mortgage Interest (SMI) is a government loan scheme available to people on Universal Credit and other benefits. This low-interest loan can be used for mortgage repayments or home repairs. Repayment is required when you sell your home, and the interest rate is currently 4.5%.
6. Universal Credit Budgeting Advances
Individuals receiving Universal Credit can apply for an emergency loan known as a Budgeting Advance. This loan helps cover unexpected costs like boiler repairs or car maintenance. The exact amount offered depends on your circumstances, and repayments are deducted from future Universal Credit payments over a maximum of 12 months.
7. Budgeting Loans
Similar to Budgeting Advances, Budgeting Loans are available to individuals receiving income support, jobseeker's allowance, employment and support allowance, or pension credit. Repayments are deducted from benefit payments.
8. Credit Union Loans
Credit unions offer cheaper loans to local people in need, as they are not-for-profit organizations. By pooling their cash, savers of the credit union can lend to borrowers at lower rates compared to traditional lenders. Membership requirements vary, so it's best to explore your local options.
9. Interest-Free Local Council Loans
Many local councils provide interest-free loans to low-income individuals, although the criteria and circumstances for offering these loans may vary. For example, Lewisham Council offers interest-free loans for disability adaptations to homes. It's worth checking with your local council to see if they can assist you.
Where to Get Debt Help
If you're feeling overwhelmed by debt, it's crucial to seek free and independent help. Organizations like Citizens Advice, StepChange, and National Debtline offer assistance. Avoid loan sharks and expensive debt options like doorstep lending. Speak to the company you owe money to and work out a manageable payment plan. Consider applying for Breathing Space, a scheme that freezes interest charges and protects you from harassment. Use a benefits calculator to see if you're entitled to extra cash, and check if energy firms or local councils offer hardship grants.
Remember, you're not alone in your financial struggles. Join our Sun Money Chats and Tips Facebook group to share experiences and gain valuable advice.
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