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Consumer Credit

All goods and services must be paid for in some way or form. Cash would be the ideal way to pay for everything, but in this day and age consumers are more likely to pay by “credit”. There are a number of ways that money is “borrowed” to pay for goods.

Charge Cards

Normally there is an annual charge for this service. You would purchase the goods initially by using a charge card such as American Express or Diners Club. The bill must be paid in full every month and you do not pay interest on the debt.

Credit Cards

Credit cards enable the consumer to by goods and services up to a pre-arranged credit limit. Once a month a bill will be sent to you and you have the choice of paying the balance off or the minimum payment. If you pay off the outstanding balance by the deadline each month there should be no interest charged. Outstanding balances that are not paid off will be charged interest at the credit card companies rate of interest.

If you pay by credit card and something goes wrong with your purchase, and the seller refuses to act, you can make a claim against the credit card company as long as the purchase cost between £100 and £30,000. Some credit card companies offer insurance on your purchases so you may also be able to claim if you damage your goods.

Debit Cards

Debit cards are issued by banks and building societies. When you use your debit card the funds are taken directly from your bank account, just like writing a cheque.

Conditional Sale Agreements

When buying this way, you choose the goods that you want from the company. The company then sell your goods to a finance company who pays for the goods on your behalf. The finance company arranges your payments and owns the goods right up until the final payment.

Credit Sale Agreements

In this arrangement instead of buying the goods on your behalf, the finance company lends you the money to buy the goods from the seller. From the moment the contract is signed the goods belong to you. If you sell the goods on the debt to the finance company is still owing until you pay it off.

Hire Purchase Agreements

When buying goods on a hire purchase agreement the seller sells your goods on to a finance company. The finance company hires the goods out to the consumer, and in return, the consumer pays for the goods with a specified number of fixed payments.

Article by Tracey Aldous