Published On: Fri, Aug 7th, 2020

Credit cards: Short term loans used by Britons to cover essential costs | Personal Finance | Finance

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Credit cards, alongside other forms of short term credit, are often useful for Britons, particularly in emergency financial situations. And amid the financial crisis, many could be turning to these methods as a helpful form of support. A recent study conducted by OpenMoney has shown a third of Britons have used short-term credit for their essentials recently.

The study asked 2,000 people their financial habits this year, taking place in early March before the worst of the crisis affected the country.

A total of 34 percent of those asked said they were turning to payday loans, buy-now-pay-later schemes, overdrafts and credit cards.

This is an increase from last year, where the figure stood as 33 percent.

Financial difficulties were present even before the COVID-19 pandemic, with 40 percent of those asked saying they had outstanding debt.

READ MORE: Over 55s set to radically reduce debt levels due to lockdown caution

“This could suggest there was already less fat to trim in household budgets even before the impact of coronavirus.

“With rising household debt, we are particularly concerned about over-reliance on short term credit for day-to-day spending.

“This is especially so for new forms of credit like buy-now-pay-later schemes and workplace lending services which make it very easy to take on debt without fully thinking through how you will pay it back or the impact on your credit rating if you don’t.”

In a similar way, the Money Advice Service has also urged Britons to think carefully about loans. 

Personal loans allow Britons to potentially borrow more than with a credit card, and they usually charge a lower rate of interest.

Loan repayments are usually a fixed amount each month, which can make it easier to budget.

And Britons can usually choose how long they would like to take to repay the loan.

However, personal loans can have higher rates of interest than some other forms of borrowing, particularly for those borrowing a smaller amount.

When taking out a personal loan, though, the service advises caution.

Its website reads: “You might not actually get the interest rate advertised. You will often see the representative APR.

“Just over half of people who apply for and are given a loan should get this rate or better – but that could mean up to half pay more.

“Some personal loans have variable interest rates, meaning they can go up or down.

“If you’re only just able to afford the initial repayments, you should avoid this type of loan in case they do go up.”

Britons can also take independent financial advice to suit their individual circumstances.

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