Andrew Hagger of Moneycomms.co.uk looks at the potential cost of not being prepared in case an unexpected expense arises.
Continuing economic pressures and stubborn inflation means 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 washing machine grinds to a halt or the boiler goes on the blink, 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 – 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, but 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 a wallet emptying £118 for the ‘quick and easy’ payday loan option, to less than £5 with low rate credit cards from MBNA and Co-op bank.
| Cost of borrowing £400 for 1 month | |||
| Lender | Product | Rate | Cost |
| Quick Quid | Payday Loan | Average customer charge £29.50 per £100 | £118.00 |
| Wonga | Payday Loan | 360% per annum – representative 4214% APR | £117.48 |
| 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 TSB | Overdraft | 19.9% plus £6 | £12.35 |
| Aqua | Credit Card (poor credit) | 34.9% APR | £11.85 |
| HSBC | Overdraft | 19.9% APR | £6.76 |
| Barclays | Overdraft | 19.3% APR | £6.55 |
| Barclaycard | Platinum Credit Card | 18.9% APR | £6.42 |
| MBNA | Everyday Credit Card | 11.9% APR | £4.04 |
| Co-op Bank | Fixed rate Credit Card | 9.9% APR | £3.36 |
Research & Calculations: Moneycomms.co.uk 04.02.2013
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