Information
There are many different forms of Credit: Here is a list of some of the most popular forms of credit used in Europe, remember it is not hard Establishing Credit but You know what are types of credit and what are your obligations.
- Overdrafts
- Credit cards
- Personal loans (from banks or building societies)
- Credit Union loans
- Hire purchase
- Credit sale agreements
- Top-up mortgages
- Moneylending
Each type of loan is described briefly below.
Overdrafts
An overdraft is a way of borrowing on your bank account. Overdrafts are given on your current account so that when your balance is 0 in your account you can still spend up to a certain limit. It is suitable if you have short-term cash problems and for spreading out the costs of expensive events such as Christmas or holidays. Generally the APR on an overdraft is between 8% and 12% and there are other fees associated with overdrafts. Be sure to pay off overdrafts within specific timeframes as the costs add up they also have a habit of becoming permanent.
Credit Cards
A Credit Cards allows you to borrow money on a monthly basis. Credit cards are accepted as a means of payment for goods and services in many places around the world. One advantage is that there is no interest charged on borrowings if you pay your full bill within a set number of days. Credit cards are flexible and can be used to pay for items and services that you may buy on-line or by telephone. They are also useful if you need to access cash in another country. They are not suitable for long-term borrowing as interest rates are high. Loans taken out on credit cards are economical only if you pay your bill in full and on time every time you receive a bill. Credit cards can be useful for consumers if you have a problem with an item you have purchased. In this situation your credit card bill or statement can be used as proof of purchase.
Personal loans
Banks and building societies offer personal loans to customers. These loans are suitable for medium and longer term needs, for example, a car loan or a loan for home improvements. Typical APRs currently range from between 7.5% to 11%. Banks or building societies may also charge other fees and charges. Generally, you pay a fixed amount back every month. If your loan is a variable rate loan you may be able to pay more than this back when you have it. This allows you to pay off the loan sooner. It is not advisable to take out a personal loan to cover day-to-day expenses.
Credit Union loans
Credit Unions also offer loans to consumers. You must be a member of a Credit Union before you can take out a loan. Credit Unions are based in the community or workplace and you must be living or working in a particular area or working for a particular employer to become a member. You may need to have saved some money in a Credit Union before getting a loan. Credit Union loans are suitable for short and longer-term needs such as loans for holidays or cars. They are also useful for refinancing other loans. The Credit Union Act 1966 regulates Credit Union loans. The APR cannot be over 12.68% and loan protection insurance is provided on all Credit Union loans. Another advantage of Credit Union loans is that they are very flexible and loan terms are easily negotiated with local credit union officers.
Hire purchase
These are hire agreements offered by shops or garages so that you can hire and eventually buy particular items. Items bought on HP are normally expensive items such as a car or furniture or electronic equipment. You do not own the item until the last instalment of the loan is paid. Sometimes the last instalment is called a 'balloon payment' which is a larger payment than any of the other instalments. Be sure that you can pay off this final amount before your take up this finance. Hire purchase finance is not flexible
The store or garage offering the loan is called a credit intermediary. This means that they operate as an agent for a finance company.
