Credit Cards

Where from? Various sources: through banks, building societies, motoring organisations, finance houses, and so on.

How they work With traditional cards, such as the original Visa and Access cards, you have a pre-arranged credit limit and can borrow any amounts up to that limit. You borrow by using your card to pay for goods and services, or to withdraw cash from a cash machine or bank branch. You pay interest on the outstanding balance, and you must pay off a minimum amount each month - usually five per cent of what you owe or £10 if greater - though you can choose to pay more. There's a delay between paying for something with your card and its appearing on a statement which gives you a period of interest-free credit, and if you pay off your bill in full each month you can avoid interest altogether, giving you up to eight weeks' interest-free credit. Credit card borrowing does not require any security.

Many new cards are appearing on the market and some work in different ways from the traditional cards. For example, one card works like a save and borrow account ), letting you choose your own monthly repayment and then setting your credit limit at 25 times that amount; another does not let you have a lengthy interest-free credit period if you pay in full, but charges a lower than normal interest rate on outstanding balances; yet another makes an annual charge regardless of the amount you use the card, and then charges a lower than normal interest rate on the outstanding balance.

Points to note Cards might not be accepted in all the places that you shop, but they are now very widely accepted both in the UK and abroad.

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Save And Borrow Accounts

Where from? Banks, some finance houses.

How they work You pay a set amount each month into an account and can borrow up to 30 times the monthly payment. You're charged a variable rate of interest on the amount you actually borrow, and some accounts pay you interest when you're in credit. No security is required.

Points to note Interest on overdrawn accounts tends to be high and there may be other charges. Interest when you're in credit is usually lower than you could get on other interest-bearing accounts.

Verdict Convenient, but expensive.

Budget accountsSave And Borrow Accounts

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