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Debt Solutions
Debt Information
- Debt Management FAQ
- Signs of a Debt Problem
- Take Control of a Debt Problem
- Negotiating With Creditors
- Know Your Debts
Know About Your Debts
Where your debt may be built up
Store Cards
Most of the High Street shops now offer credit facilities to customers wishing to purchase goods from them. Customers are routinely encouraged to take out this type of finance as the sales commissions for the staff are very generated due to the very high monthly charge for credit.
Credit Cards
A credit card will entitle the holder to use the card to purchase goods and services from suppliers who have contractual agreements with the card issuer. Holders are allowed to buy goods and services up to the credit limit set on the card. Credit is often available interest free for up to six weeks (except for cash withdrawals). Statements are issued monthly by the credit card company to the holder. If payment of the outstanding balance is made by the date required on the statement then interest charges are avoided. If the account is not cleared at the end of each month then payment is by monthly instalments. Minimum payments required are equivalent to the higher of either a set percentage of the outstanding balance or a nominal amount.
Credit card budget account
The customer is provided with a credit card and a credit limit is fixed. Repayment is by fixed monthly instalments. This operates as a running account agreement
Mortgage
A mortgage is given by a bank, building society or associated lender to buy property. An extra mortgage on the property, called a second mortgage, can be given, for example, for home improvements. The lender may charge a higher rate of interest on the second mortgage. If you do not keep up repayments you are likely to lose your home.
Personal loan account
This is a loan with a fixed rate of interest built in at the beginning of the loan. Repayment is by a fixed monthly payment over an agreed period of time. The interest rate can be relatively high.
Catalogues/mail order
Buying by catalogue is very popular, not only for purchasing clothes but also for obtaining consumer goods. Catalogue sales have been around for decades. Catalogue companies produce brochures in which they showcase the products they have on offer. This they distribute to agents who act on their behalf in selling the goods to customers or to individual customers direct. This model means that they do not have to operate and maintain expensive stores. Payment is made by weekly instalments until the cost of the goods purchased is paid off. This is generally a fixed-sum credit agreement.
Hire Purchase
A hire purchase agreement is a hire agreement which contains an option to purchase clause. These are seen regularly where cars are purchased. It is usually an agreement where a customer selects goods from a supplier who then sells them to a finance company which hires them to the customer under the HP agreement. Payments are generally made monthly. No title to the goods passes to the buyer at the outset as the goods subject to HP agreement remain the property of the creditor until the final instalment and the option to purchase fee have been paid. Until this has been done the debtor may not dispose of or sell the goods but, this will often be given if the debtor undertakes to remit the proceeds of sale.
Charge account
The customer is provided with a credit card and a credit limit. Repayments will be by flexible monthly payments. This is a running account agreement with an interest rate likely to be higher than other credit cards
Loan sharks
It is a criminal offence to loan money without a credit licence. There has been a great deal of publicity about 'loan shark' creditors who charge extortionate rates of interest (from 500% into the millions), use harassment and threats of violence to enforce payment or take benefit books as security for loans. Any creditor indulging in these practices should be reported to both the police and the local Consumer Protection/Trading Standards Department but borrowers/clients who complain should not be named without their specific consent.
Payday loans
These are very short term loans that are advanced for usually up to a month at a time. The rates of interest charged are very high indeed, so if one borrows £100 the repayment after one month will be £125. This is an APR of 1355%. It is used by people who need emergency cash prior to payday. The loan is collected at the next payday.
Unsecured loan
A separate loan account is opened for the customer. Interest is built in from the beginning and repayments are paid on a monthly basis from their current account by Standing Order to the loan account. An early settlement rebate will normally be available where the loan is repaid in full before the expiry of its agreed term.
Pawnbrokers
The credit crunch has given this business a new commercial momentum. Goods are taken in as security and called 'pledges'. Repayment terms differ between 25% and 200% per annum.
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