What is Credit

Credit means buying what you need now and then paying for it by regular instalments in the future. It could also be called getting into debt!

It is therefore important to budget carefully and plan your spending to ensure that you don't take on more than you can reasonably afford and remember that borrowing money will cost you in the way of interest.

It is imperative that find out everything you can before you decide to buy anything on credit. Consider things like interest Rates and annual percentage rates.

What Types of Credit are available?

Here are some details about the different types of credit you may come across - it is important to know how they work before you start to use any type of credit.

Type of Credit		Operated by		Advantages		Drawbacks		How It Works
Hire Purchase		Finance Companies		Easily Available		Expensive		Usually have to pay a deposit before you take away the goods. You'll have to sign an agreement promising to pay the rest plus the interest in regular amounts over a fixed period of time. The goods don't belong to you until you have made the finance payment.
Credit Cards		All High Street banks		Easy and convenient to use. Could also be a way of obtaining cheap credit if you settle promptly and do not take out cash advances. More protection when purchasing goods that cost over £100 (equal liability with the lender)		Very expensive if you let the debt run for too long		Once your application is accepted by the bank, you will be given a plastic card that you can use instead of cash to pay for things. You will also be given credit limit. You should check whether the bank charge an annual fee and what the APR is, as this will differ from lender to lender. You will be given a monthly statement showing what you have bought and how much you owe, and what the minimum amount is that you should pay that month. You can pay the whole amount straight away - this really is the best option as then there will not be any interest charges to pay. If you pay in instalments, you will be charged interest on what's left after you have paid your monthly payment
Bank Overdraft		All High Street banks and most others		A cheap way to borrow - interest is only paid on the balance of the loan outstanding		Only for current account holders		A scheme for people who already have a current account with a bank. You ask you Bank Manager to overdraw on your account up to a specified limit and for an agreed length of time.
Personal Loan		All High Street banks, building societies and even supermarkets		Fairly cheap form of Credit and easy to arrange May be less straightforward if you don't already have an account with the bank		Available to anyone and is usually granted for a specific item.		Repayments are in equal monthly instalments and typically may be over 10 years. Some loans may be secured on property - This means that if you fall behind with your repayments the finance company are able to force you to sell your home to get back the money you owe them
Mortgage Loan		Building Societies and most High Street banks		Buying your own home has proved to be one of the best possible investments in recent years		You are taking on a long-term arrangement		You have to meet certain conditions. The building society or bank may give you more favourable terms if you have been saving with them for some time. You cannot usually borrow the entire cost of the house. There are different types of mortgage so it important that you obtain expert advice on which one is best for you. Most mortgages can last for 25 years.

Section 75 - Consumer Credit Act 1974

Paying for goods or services by credit is now a convenient and acceptable part of daily life, with many people preferring this method of payment to using cash or cheques - there are many advantages including Section 75 of the Consumer Credit Act 1974.

This means that consumers who have a claim against a supplier, e.g. for breach of contract or misrepresentation, will have an equal claim against the lender. A consumer can choose whether to claim against the supplier, the lender or both, so long as the cash price goods cost more than £100.00, but less than £30,000

Click here for more about section 75