What’s the good word for unsecured loans?

The most popular form of unsecured loans is by far the credit card. Easy to use, easy to obtain, it has become the absolute ‘must have’ item for most of us. In fact, the use of plastic had become so widespread that now we can’t even think of a time when we had to make do without it.

Credit cards are commonly used for utility shopping, buying gas, and most importantly online shopping. While most financial experts cry about the huge interest rate charged by the banks against credit card facilities, the fact that people are still willing to go for it indicates that there has to be something in favour of these cards. So, for a change, let’s look at some of the benefits associated with credit cards:

1) Convenience
As far as usability is concerned, unsecured loans in the form of credit cards come out tops. It is much more convenient to carry a card around instead of stuffing one’s wallet with wads of notes.

2) Accountability

Credit card provides you a systematic billing of your purchases, thereby making you aware of your expenses. However, it does provide the temptation to spend beyond your limit.

3) Consumer Protection

One benefit of using a card over cash/cheque is that you have the right to legal protection under the Consumer Credit Act provided your purchase is between £100 and £30,000. Therefore, in case your purchase is damaged or if your online purchase doesn’t arrive on time, you have the right to claim the full cost of the purchase from your credit card provider. This is one of the biggest advantages of using unsecured loans in the form of cards.

4) Interest free period

One of the most popular benefits of a credit card is that big banks offer an interest free period of 45-59 days. The best way to make optimum use of this facility is to be aware of your statement dates and time your big purchases during the initial period of your interest free time. Currently, both Amazon and Halifax One are offering cards with 59 days interest free period.

5) Introductory rates

There are many banks that offer an introductory rate of zero per cent. This is a great way of reducing the interest on unsecured loans. For example, if your outstanding balance with one credit card company is high; you can cut back on the payments by shifting your balance to a new credit card company that offers a zero per cent introductory rate. However, you have to stop using your credit card in order to save money. You can also shift credit cards and take advantage of the free introductory rate in case you intend to make a big purchase. Generally, the zero per cent rate is applicable for a period of three months.

6) Cash backs

There are various credit cards that offer cash backs on your spending. Some notable examples include Morgan Stanley and American Express. Both these banks are promoting a 2 per cent cash back policy.

7) Earn points

There are some companies that promote a point based value system. For every pound spent, some companies offer loyalty rewards that can be redeemed at the likes of Marks & Spenser, Tesco, Virgin and Amazon. Besides this, other credit cards claims to donate a percentage of the interest incurred on your credit card to your favoured charity or sports club. However, this method is best avoided because there is no transparency as regards the so called donations.

8) Freebies

There are very few forms of financial aid that offer freebies as much as unsecured loans. Introductory freebies include free stationary, CD players, iPods, and wine bottles. Besides these, credit cards companies may also offer free travel accident insurance, purchase protection and protection against other online frauds.

Note: purchase protection clause can work on products above £50 worth. It can cover most purchases against accidental damage or theft up to a period of 100 days provided you pay for it in full.