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Credit to the Nation


Credit is the term given to borrowing money. In order to borrow money in the U.K. the person borrowing the money must be aged 18 or over. Most forms of credit will require the borrower to pay back the original amount borrowed, plus some extra in the form of interest.

The interest rate on borrowings is referred to as the Annual Percentage Rate (APR). The lower the APR, the better the deal you’re getting. On top of the interest, some lenders may also add administration charges, so make sure that you know exactly what you’re paying for by reading the terms and conditions.

Getting credit is fairly easy. There are many lenders out there who offer many different forms of credit, for many different reasons. Some forms of credit are seen as short-term, such as an overdraft, whereas other forms are credit are designed to be taken out for longer periods of time, such as a mortgage.

Applying for credit might make it look like it’s a quick and easy way of getting your hands on that extra dough, but when it comes to paying it back, it can be a long and slow process.

Before you borrow, make sure that you work out how much you can afford to pay back on a monthly basis. Keep in mind that anything that you borrow, you will be expected to pay that amount back, plus the extra interest as well. Also, make sure that you shop around for the best deal. There is no point in running into a credit agreement without checking whether it’s the best deal that you can get. By shopping around, you could be saving yourself hundreds or maybe thousands of pounds.

Types of credit that are available are:

• Credit sale – Under a credit sale, you buy the goods at cash price. You usually have to pay interest, but some suppliers offer interest-free credit. Repayment is made in instalments, normally on a monthly basis.


• Hire purchase – Under a hire purchase agreement, you are effectively hiring the goods until the final instalment has been paid. Again, repayment is normally made on a monthly basis.


• Credit cards – Credit cards are supplied by banks, finance companies and shops. They can be used to buy goods or obtain money from a bank. You will receive a monthly statement each month stating how much you owe, and will be told the minimum amount that you will need to pay that month. Interest is then added to any balance that is carried over to the next month. You may also have to pay an annual fee.


• Store cards – Store cards work in a similar way to a credit card. Certain stores offer store cards and you can only use them to buy goods in that store. Store cards often have very high interest rates


• Charge cards – The difference between a credit card and a charge card is that the amount borrowed on a charge card must be paid in full at the end of a given period, normally a month. Interest is not charged, but you may have to pay an annual fee.


• Loans and overdrafts – A bank or building society can grant you an overdraft or offer you a loan. You are then expected to repay the borrowings in either regular instalments, or in a lump sum. Interest is added to the amount.


• Mortgages – A mortgage is a long-term loan given by a bank or building society to buy a property.


• Mail order – Mail order shopping is normally arranged through a catalogue. Goods are normally more expensive to buy in this way, but the credit is normally interest free.


• Pawnbrokers – Pawnbrokers lend money against the value of your property left with them. They must give a receipt known as a ticket. Pawnbrokers agree to keep your property for at least six months but you can buy back the goods at any time by paying back the loan plus interest.


• Credit Unions – A credit Union is a self-help co-operative whose members pool together their savings to provide each other with credit at a low cost interest rate.


• Money lenders – Money lenders will normally lend small amounts of money at high interest rates. There may be more sources of credit more suitable than using a moneylender.

Disclaimer,   Target Audience,   Jurisdiction    Last updated & checked: 30/03/2006