Rachel Springall, Finance Expert at Moneyfacts.co.uk, said:

“Consumers looking to consolidate their debts or perhaps even fund the cost of some home improvements will be pleased to see loan rates have fallen since last year. At the start of a new year, it wouldn’t be too surprising for homeowners to aspire to improve their living space, particularly if they are using an area for home working. However, funding the cost may seem daunting, and in fact it could be cheaper to use a credit card instead of a loan. One of these options may be in minds for some, with others perhaps turning to them in need this year. Indeed, according to a recent study by LV=, 25% of consumers expect their finances to worsen over the next three months.

“The amount of interest someone would pay on a typical loan of £3,000 on average would be more than £600, but using the longest balance transfer card from Virgin Money would cost £88.20 in a transfer fee and provide borrowers with 35 months to pay off the debt before interest applies. In fact, those borrowers choosing a fee-free card instead could avoid paying any interest if they set aside £150 per month in repayments – with the longest fee-free deal from Sainsbury’s Bank offering 21 months interest-free for balance transfers.

“Borrowers looking to spend £3,000 upfront, such as on DIY home improvements, will find the best introductory purchase card from Barclaycard 24 months interest-free, which they can easily pay off with fixed £125 monthly repayments. Those who are in the red on their current account with £3,000 could move this by a money transfer transaction to MBNA offering 18 months interest-free, costing £89.70 as a transfer fee. In some circumstances, consumers may need to change their credit card fixed repayment to the bare minimum. However, if they don’t pay their debt back before their interest-free offer expires they will incur interest charges, which can typically be higher than on a loan.

“The best choice between a credit card or loan will entirely depend on how strict a borrower can be with their repayment plan, but what is certain is how important it is for borrowers to compare deals carefully. If borrowers are struggling with their debts, then seeking help from a debt charity is wise and it’s always worth checking any credit score before applying for a card or loan too, for example with Experian.”