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By Sarah Modlock January is always a long month. Most people get their monthly pay a little bit earlier in December which feels like a great financial boost at the time but can easily leave you living on baked beans until the end of January if you don't plan ahead. I thought I had heard it all but apparently a staggering 1.3 million parents are so short of money this month that they are prepared to raid their children's bulging post-Christmas piggy banks just to get them through to payday. New research from Yorkshire Bank has found that nearly one in two parents in the UK say they will find January a serious financial struggle. However, their children are sitting pretty on a cumulative festive windfall of £2.2 billion. With each child receiving, on average, £191.50 in Christmas booty, their cash can often provide a quick fix for short-of-money parents. One in eight parents - equivalent to 1.3 million nationwide - admit they may have ask their children for a loan. Little wonder then that only one in three parents encourages their child to save their cash in an account. And if you thought that sort of self-interest was bad, you will be very unimpressed by the 300,000 completely shameless parents will even take some of their children's toys back to the shop just to get some extra money. My parents never tried this with me. And I'm sure my brother Michael would have charged them interest if they had asked for a loan from his piggy bank. Loans from grown-ups If your thoughts are turning to loans then remember the golden rules. Shop around and only borrow only what you can afford, even if you're offered more. Aim to pay the money back in as short a time as possible according to what you can afford. It's not just Christmas debt which prompting more interest in loans; Sainsbury's Bank estimates that this year, nearly £50 million will be taken out in personal loans to help pay personal tax bills as the end of January deadline looms for self assessment. Make sure that your loan rate is competitive The good news is that loan firms are cutting back on penalty fees for borrowers who pay off their debts early, new research from MoneyExpert.com reveals. Companies justify charging early redemption penalties on the basis that they have lent the cash on a fixed term and guaranteed a fixed interest rate for the period. They therefore charge a penalty for early redemption to compensate for their risk. The Consumer Credit Act of 2004 restricted loan companies to charging a maximum two months interest for early redemption but most companies have cut that to one month. And around one in five of the 90 loans on the market from around 64 companies charge no penalties. More than one in five loan firms now don't charge early redemption fees. These include firms which are also offering the best rates on the market at time of writing, which are from Zopa.com at 5.1% and Northern Rock with 5.8%. These Moneysupermaket rates are based on loans of £3,000 over 12 months. 'Zopa does not inflict any form of early repayment penalty - explicit or hidden - so borrowers will have the added advantage of being able to repay the loan as soon they like, without losing out,' explains the firm's Chief Executive, James Alexander. As a special 'January Sale' feature, Zopa is also waiving its standard 0.5% fee for borrowers, to encourage more people to discover the big financial benefits of 'Social Lending'. However most firms still charge at least one month's interest to customers who clear their balances ahead of the term agreed at the start of the loan - and two companies charge as much as two months interest. So it is crucial to check this before you sign on the dotted line. The cost of paying the loan off early can be as much as £255.70 on a £5,000 loan borrowed over four years. Sean Gardner, Chief Executive of MoneyExpert.com, has this advice: 'Early redemption charges can be misleading - for example if you have to pay two months' interest to pay off a three year loan early, this is an effective increase in the headline rate of one sixteenth. So a competitive rate of 5.9 would theoretically become 6.26. Paying off a loan early makes sense as it cuts down your interest bill and helps you become debt-free. But it can come at a price and while early redemption penalties can be a price worth paying it is better to avoid them entirely by taking out a loan which doesn't charge fees. If you believe you will pay the loan off before the end of the term then research the market before you buy.' Redemption penalties are not the only factor to focus on when borrowing but they can be painful if you do pay the loan back quickly. And it is now relatively straightforward to find a company which does not charge redemption penalties. Top tips to borrowing the right way:
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