BORROWED-to-the-hilt shoppers are increasingly turning to "buy now pay later" offers as the credit crunch stops them piling more debts on their plastic. While credit card borrowing fell in the first quarter of the year, according to the Association of Payment Clearers Association (Apacs), customers seizing "buy now pay later deals" rose by 24 per cent, says the Finance Leasing Association (FLA).
Scots, in particular, cannot get enough easy money, says the FLA, with three towns in the top ten of biggest borrowers of personal loans in the UK. The average Motherwell loan is £2,932, East Kilbride £2,851 and Falkirk £2,793.
Debit card usag
e is also rising. Consumers made 78,888 more purchases using them rather than credit cards compared with a year ago. Credit card transactions fell by 4,300.
Apacs spokeswoman Sandra Quinn said: "A few years ago, debit and credit card usage was growing at the same rate, as cheques were being replaced. But now debit cards are storming ahead."
However, one area where credit is growing strongly is "buy now pay later schemes". The FLA, which represents retail and motor industry credit, found that overall lending in March was down 12 per cent.
Significantly, credit secured on property, usually used for big purchases such as a new kitchen, fell 76 per cent, compared with a year ago. This indicates an unwillingness to add to a family's housing debt or take on substantial new commitments.
Yet "buy now pay later deals" at £230 million were nearly a quarter higher than a year ago. An HLA spokeswoman said: "It could be that where people are finding it more difficult to get credit they are turning to these in-store deals. Perhaps people simply want to hold on to the money they have." So which is the best way to buy and where can you find the cheapest deal?
Buy now pay later These are essentially interest-free loans, where you do not begin making repayments until a later date. As there is no such thing as a free lunch, the cost of the credit is built into the price. If you have cash, try to negotiate a significant price discount by paying up-front.
These offers provide an attractive way for securing big items you find it hard to save up for. In the current climate, some retailers, such as furniture outlets, are desperate to shift stock, so there are fantastic deals on offer.
But they can also be fraught with danger. Do not allow the easy terms to seduce you into buying something you can't afford or are not sure you want. Once you have signed, there is no turning back.
Also ensure you fully understand the small print. Pay particular notice to the "due date", by which, irrespective of any initial leeway, the item must have been paid for. If you fail to meet your end of the bargain, and pay precisely the sum required on the due date, not only can you be hammered with punitive interest but, in some cases, the interest-free period is wiped out and charges back-dated.
Credit cards Choosing the right credit card depends on what kind of customer you are and whether you already have debts.
Those with big balances may want to consider a zero balance transfer card, which allows you to pay off your debt interest-free over a period, although you will have to pay a transfer fee when you switch.
It is important not to use these cards to also make purchases, which will attract immediate interest. For purchases, you can get a separate zero interest purchase card.
Alternatively it is possible to get a card that combines free interest on both purchases and balance transfers. The best of these currently is the Tesco Clubcard Mastercard, which charges zero interest on purchases for 12 months and zero on balance transfers for six months. The transfer fee is also low at 2 per cent of outstanding balances transferred.
The other eyecatcher is M&S Money Mastercard, which charges no interest on balance transfers for six months and for purchases for ten months, again with a 2 per cent transfer fee.
Neither are cheap if you borrow after the introductory period, with Tesco charging 16.9 annual percentage rate and M&S charging 15.9 APR. The Tesco also has a shorter interest-free credit cycle of 51 days rather than M&S's 55 days, which means bills come round sooner.
Halifax All In One Mastercard is a variation on the theme, giving zero interest on purchases and transfers for nine months, although its transfer fee is higher at 3 per cent. It does, though, offer a 59 days interest-free credit cycle.
However, if you need longer to clear your current bills, then a standalone zero transfer card will be best. Uswitch's Louise Bond said: "These are ideal for people who know they will be able to clear their debts within a certain timescale."
Virgin, for example, has a card charging zero interest for 16 months, for the payment of a 2.98 per cent fee.
These next best are on offer at Royal Bank of Scotland, Nat-West and HSBC but, interestingly, these are only available to current account holders. Bond added: "This is an interesting development, that the best cards are only available to existing customers. We will watch to see whether other organisations go down this route."
These three banks give 15 months interest-free credit if you pay a 2.9 per cent fee.
Apart from that Abbey will lend interest-free for 15 months with a 3 per cent fee, and Halifax and Nationwide for 13 months, with the same fee.
Finally, if you repay in full each month consider a cash-back or award card, which provide discounts on your spending.
Personal loansThese are normally arranged via a bank, for a minimum few thousand pounds, which is repaid via monthly payments over one, three or five years. Everything is fixed at the outset, and there may be penalties for repaying early. The cheapest rates on offer are 7.9 per cent from Sainsbury's, 8 per cent from Tesco and 9.9 per cent from the Post Office.
Pawn brokers The sign of the three balls has been around for centuries, but pawnbrokers are thriving today as the place where customers can turn for instant cash. You pledge an item such as jewellery in return for cash from as little as £5 to £ 1 million, plus interest of usually between 5 and 12 per cent a month.
But if you need cash for a short-term fix, this could be your answer. There are usually no redemption charges, so if you redeem over a month or so, the interest may actually be competitive. Items are usually pledged for six months, after which they can be sold, although the borrower is given the chance to extend the loan.
If sold, the proceeds less the debt are paid to the customer, unless the item is worth less than £75.
A new breed of online pawnbrokers peg interest at between 3 and 6 per cent per month.
