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RECORD money: THE LOAN DECESION; It's important to make the right choice when paying off debts.

Byline: By ALEX MORGAN

EVERYONE is worried about the rising cost of credit - apart from the banks and building societies raking in the profits.

The Bank of England may have reduced their base interest rate twice this year, but lenders have been paying little heed to this signal to cut rates. In fact, many have increased the amount they charge.

It is still possible to borrow at a low rate, but you need to know where to look. And that may mean choosing a credit card rather than a personal loan.

Moneyfacts.co.uk analyst Michelle Slade points out: "It's not only mortgage rates that continue to increase, so too have the rates and monthly repayments on personal loans.

"Since the beginning of the year, more than half of lenders offering personal loans have made changes to their rates."

For example, back in January, Black Horse charged 16.9 per cent interest to lend pounds 1000 over 12 months. This has now leapt to 27.9 per cent.

If you want to borrow a substantial sum, such as pounds 10,000, a personal loan may still be the cheapest way.

Your Personal Loan, Moneyback Bank, Sainsbury's Bank, Barclaycard and Tesco Personal Finance all charge less than 7.5 per cent annual interest on debts this size.

But if you are looking for a smaller amount - or have a couple of thousand of existing credit you want to transfer to a better rate - there are few cheap loan deals.

Only Your Personal Loan and Barclaycard will lend pounds 5000 at under 7.5 per cent.

And if you want just a thousand or two, rates are even less favourable.

Abbey, at 7.9 per cent, is the sole lender charging in single figures for pounds 1000 - the next lowest rate is a whopping 13.8 per cent from Barclaycard.

That's why, particularly for smaller amounts, borrowing on a low-cost credit card can work out far cheaper.

With long-term interest rates averaging 15.9 per cent, many cards are as costly as loans, but there are far better deals available.

There is no interest on purchases with Capital One Platinum for 15 months, with HSBC MasterCard for 12 months and Halifax All-in-One MasterCard for 10 months.

Others, including Lloyds TSB Advance, PayPal MasterCard, Barclaycard OnePulse and Bank of Scotland Plus, offer zero per cent on purchases for six months.

You can transfer an existing balance and pay no interest for between 13 and 15 months with Capital One Platinum, Virgin MasterCard, Egg Visa, Barclaycard OnePulse, Abbey MasterCard/Visa, Halifax Plus and NatWest MasterCard.

However, it is vital to read the small print on any deal you are considering. Once the no-interest period is over, the rate on these cards reverts to between 11.9 and 16.9 per cent.

So you need to be ready to move your debt elsewhere if you haven't cleared it.

For transfers, you can expect to pay a fee of around three per cent - which soon mounts up if you switch several times.

Also, once interest charges start, while most cards allow a free period of 56 to 59 days after use, Lloyds TSB Advance starts charging from day one.

If it will take very much longer than the zero interest period to clear your debt, to avoid paying over the odds or making repeated transfers, consider cards with a low long-term rate.

Barclaycard Life of Balance charges 6.5 per cent on transfers until they are paid off, with no fee, and no interest on purchases for 10 months. After that, its purchase rate is 15.9 per cent.

The Egg Money card charges 7.9 per cent until transfers are cleared, with no fee, and the same long-term rate for purchases, while Intelligent Finance's Flat Rate MasterCard charges 8.9 per cent for both, with no fee.

CAPTION(S):

CARD SHARP: Save by borrowing on a low-cost credit card PIC: DANNY LAWSON/PA
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Title Annotation:Business
Publication:Daily Record (Glasgow, Scotland)
Date:Jun 12, 2008
Words:658
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