Credit card, overdraft or unsecured loan?

There are three mainstream ways of unsecured borrowing from banks and building societies: credit cards, overdrafts and unsecured loans and there is a wide variation in the interest rates charged.
Lateral thinking is sometimes required to compare the different sorts of deals available.

David Black, Principal Consultant of Banking at Defaqto said: "The best loan deals are restricted to those with good credit ratings. Personal pricing or ‘risk based pricing' is taking a real hold in the unsecured market so, as an individual's credit worthiness deteriorates it becomes increasingly difficult and, when available, more expensive to borrow."

"In essence lenders consider many aspects when deciding whether, and if so, how much and at what rate, to lend. An individual's credit report, employment and property status, affordability, indebtedness, financial behaviour and usage are all part of the mix in the lender's decision making process. Many providers concentrate the majority of their lending on existing customers and a ‘cautious approach to lending' is becoming an increasingly commonly heard phrase. Existing customers are not immune from this process as lenders will also monitor their creditworthiness."

"Lenders are understandably selective about who they will lend to and turn down many applicants. Of those to whom they're willing to lend typically two-thirds should be offered the advertised loan rate. The remaining one-third may get offered a loan facility at a higher rate. Another factor to consider is that the borrower may not be able to borrow as much as they want."

Credit Cards - 0% balance transfer offers

69% of credit cards available to new customers have a 0% introductory balance transfer offer. Of these cards the average balance transfer fee is currently 2.85% and the average duration of the 0% offers is 9.7 months. Many of these 0% cards now charge a 3% fee on the amount transferred.

Credit Cards - 0% purchase offers

60% of credit cards available to new customers have a 0% introductory purchase offer and the average duration of the 0% introductory purchase offers is 4.4 months.

Overdrafts

For those prepared to switch their current account to a new provider there are a number of current accounts offering 0% overdrafts to new customers with the 0% overdraft typically lasting for up to a year. Providers offering 0% overdrafts include Abbey (0% for 1 year), Alliance & Leicester (0% for 1 year) and Norwich & Peterborough Building Society (0% for 6 months).

Based on current offers one stands out because it is also offering £100 cash back for applications made before 28th May to new customers who transfer their current account from another provider:-

Alliance & Leicester's Premier Current Account.

It offers a 0% authorised overdraft on up to £2,000 for one year to new customers. Note that you must pay in at least £500 every month into this account (there is an ‘under-funding fee' of £5 levied for any month in which £500 or more is not deposited).

David Black: "This means that you could get paid £100 to borrow £2,000 interest free."