credit

Credit | Cash or Credit? | Finding the best deal | Get it in writing | Credit Cards | Cash Loans

Credit

You cannot obtain credit until you are eighteen but once you reach that age there are a whole range of credit offers open to you.

Credit can be a tempting way to shop, whether it's paying with your credit card, getting a loan or using a shop's credit deal. You can have what you want now and pay later. But there are lots of possible snags.

If you stay in control, credit can be useful. For example, you can spread the cost of buying a car. But if you get in too deep, you could end up with major money problems.

Cash or Credit?

Before taking on credit, think about the benefits of paying cash. You'll save money and have no worries about paying back a loan. Buying on credit can be an expensive way to shop.

On top of the cash price, you have to pay interest and other charges. Don't just look at the monthly repayments, check how much you will pay in total. Compare it to the cash price. It's often a lot more expensive than you think.

Don't take a loan for longer than you need to. Long-term loans with small repayments might look attractive but can turn out to be a bad deal, particularly if you want to settle up early.

If you pay by credit:

• you'll often pay more than if you pay by cash
• you'll lose a chunk out of your wages for months or years until you've paid off the credit
• you could be in real trouble if you can't keep up the payments

Before you sign anything, ask yourself:

• what is the cash price of goods? Can I get them cheaper somewhere else?
• do I really want the goods - or this loan?
• could I wait and save up instead, or use savings I've already got?

If you decide to borrow, make sure you know exactly what you are doing. Work out what you can afford to pay.

Add up all your regular outgoings. How much is left at the end of the month.

Don't commit yourself to the limit. Allow for extras like haircuts and holidays and emergencies such as car repairs. Don't rely on extra money from overtime or a part-time job (unless you're going to pay it off quickly).

Be wary of taking on more than one major credit purchase at a time. If you do, make sure you can really afford it. It's easy to get caught out and find yourself with too much to repay.

Most people get into debt because things change. Suddenly, there's not as much money coming in and they can't repay their loans. If you get behind with repayments tell the credit company immediately.

They may be able to alter your payments to give you more time to pay. If your problems are serious you should contact our Debt Counsellors on 686510 - our free confidential phone line.

If you don't act your credit rating will be affected and you'll find it difficult to borrow in the future. This doesn't just mean you won't be able to buy everyday items on credit - you might not be able to get a mortgage when the time comes.

Finding the best deal

Finding the best deal. If you decide to borrow, shop around for credit, just like you'd shop around for anything else. Compare different types of credit. If you can get one, would a bank loan be cheaper than the shop's finance package?

Look out for the APR (Annual Percentage Rate of charge) figures. This is a standard measurement showing how good a deal the loan is. It includes most of the charges you have to pay. Usually, the lower the APR, the better the deal. If the charges included in the APR can vary, the interest rate and your repayments can go up or down.

If your budget is tight you might be better off with a fixed-rate loan so that you know exactly how much you will pay each month. You might see special offers, such as interest-free credit if you buy today, or deals where you buy now and pay nothing for six months.

Or sales staff might tempt you with special discounts or a prize if you sign on the spot. Try not to get carried away. When you take the total cost of the deal into account, is it still the bargain you think it is?

You might be able to buy the goods much more cheaply somewhere else. And once you've signed, it will probably be too late to cancel.

Get it in writing

Before you sign, ask for a written quotation. Ask for all details of the loan to be included so you can see exactly what you are taking on, and help you to compare one deal with another. Read the quotation at home and think about whether it's really what you want.

Credit Cards

Be careful about using a credit card or store card to buy lots of small purchases. These can mount up to a big debt before you know it and credit card and store card interest rates are higher than with many other forms of credit.

When you buy from a mail order catalogue where you add items to your account remember to keep an eye on the total amount you owe.

Cash Loans

Banks and finance companies may make cash loans if your credit rating is acceptable to them (that means if they think they are not taking too big a risk in lending you money.) There are finance companies who specialise in lending to people who are, for whatever reason, classed as a poor risk.

The interest rates charged by these companies may be high when compared with the banks or 'high street' finance companies. Some of these companies make very small loans, as low as a few pounds, but they may lend you money when no-one else will.

They tend to visit your home weekly or monthly to collect repayments. These small-scale money lenders range from reputable organisations right down to 'loan sharks'.

It is illegal to be a money lender in the Isle of Man unless registered with the Office of Fair Trading, which ensures that the loan sharks don't find any victims here.