What’s your back up in case of a winter emergency?

The variation in charges for borrowing £400 to cover an unexpected emergency for just one month is far wider than many people realise, from a wallet draining £131 for the ‘quick and easy’ payday loan option, to less than £5 with low rate credit cards from Sainsbury’s Bank, MBNA, Barclaycard and Tesco Bank.

Andrew Hagger looks at the potential cost of not being prepared this winter in case an unexpected expense arises.

Continuing economic pressures mean increasing numbers of people are struggling to balance the family budget and have little or no emergency savings to fall back on.

If the car unexpectedly fails its MOT, the boiler goes on the blink, or the cold snap leads to burst pipes, how are you going to find the money in a hurry?

These aren’t things you can leave until you’ve scraped enough cash together or until the insurance claim is settled – you probably need the car to get to work and no heating at this time of the year would be pretty unbearable.

Unfortunately many consumers don’t have a ‘Plan B’ hence why so may turn to the speedy but very costly option of payday loans, or risk going into unauthorised overdraft.

However just a little preparation now can save you a packet in the future, if you suddenly need to find a few hundred pounds in a hurry.

By applying for a credit card or in case of need bank overdraft limit now, at least you know you’ve got that financial safety net available if needed.

Even if your credit score is blemished there are still much cheaper options than payday, with specialist credit cards from Vanquis and Aqua, and while the interest rates may look a little scary, the actual costs aren’t that far out of line with some bank overdrafts.

The variation in charges is far bigger than many people realise, going from an eye watering £131 for the ‘quick and easy’ payday loan option, to less than £5 with low rate credit cards from Tesco Bank, Sainsbury’s Bank, MBNA and Barclaycard

                                                                                                                                                                                                                                                                      

Cost  of borrowing £400 for 31 days
Lender	Product	Rate	Cost
Wonga	Payday Loan	365% per annum – representative 5853% APR	£131.21
The Money Shop	Payday Loan	Representative APR 2961%	£119.96
Quick Quid	Payday Loan	Interest at 300% per annum	£94.83
Halifax reward	Overdraft	£1 per day	£31.00
Santander	Overdraft	£1 per day (max £20)	£20.00
Vanquis	Credit Card (poor credit)	49.9% APR	£16.95
Lloyds	Overdraft	19.9% plus £6	£12.76
Aqua	Credit Card (poor credit)	34.9% APR	£11.85
HSBC	Overdraft	19.9% APR	£6.76
Barclays	Overdraft	19.3% APR	£6.55
RBS	Platinum Credit Card	18.9% APR	£6.42
MBNA	Everyday Credit Card	13.9% APR	£4.72
Barclaycard	Platinum Simplicity	7.9% APR	£2.68
Tesco Bank	Clubcard	7.8% APR	£2.65
Sainsbury’s Bank	Nectar Low rate	7.8% APR	£2.65

Research & Calculations: Moneycomms.co.uk 29.01.2014