Consumer Credit

- Guide to Credit | Guide to Credit Problems

Do you have outstanding debt on a credit card? After that must have gadget in the shops but don't have the money to pay for it? You could use the stores own loyalty card or even use their credit facilities, but is that the most economic way to purchase?

• Credit Debt
• Consumer Credit
• Debit Cards
• Credit Cards
• Store Cards
• Loyalty Cards
• Credit Facilities
• Consolidation

Credit Debt - Plastic Debts

If you have outstanding debt on some form of consumer credit, you may be paying more than you need to. The rates charged on plastic cards and for credit facilities could be higher than if you had a personal loan.
Have you noticed that paying the minimum payment on your plastic's debts pays that months interest but barely touches the outstanding balance. Continuing to manage your debt that way will never clear you from that plastic burden.
Using a stores credit facilities to make a purchase might cost more overall than arranging a loan with which buy with. No deal you need to use credit facilities to buy with is that good. The rates you might be charged for the policy could easily swallow up any savings you think you've made.

Consumer Credit - What is it?

Consumer credit is a line of credit products used for personal or household purchases. Consumer credit comes in the form of two basic types, plastic cards and credit agreements. Essentially they allow you to spend up to a pre agreed amount on which you will be charged interest as well as fees for administration.
Plastic cards allow you to borrow money to buy things straight away, you may not otherwise be able to afford, and then repay the used credit over a period of time. How long a term you choose to repay over is up to you, however you will pay more the longer you take.
A credit agreement or facility is when an establishment, business or shop has a pre-arranged line of credit policies from a lender. When a customer is unable or unwilling to pay for an item they could apply for the policy with which to finance the purchase. There is a credit check to decide suitability prior to agreement but rates charged and repayment terms are pre-set.

Debit Cards - Bank Accounts

Debit cards take money directly from the holders bank account. Debit cards are not credit cards but are an alternative to cash or writing a cheque. Linked to your bank account, debit cards often also work in cash machines and as a cheque guarantee card. When using a debit card for a purchase money will be shown withdrawn from your account in a few days.
Switch and Visa operate these schemes for the banks. Generally using these cards do not cost extra as they come with your account although this could be dependant on you remaining in credit.

Credit Cards - Carried Finance

Credit cards are a finance product that is used to access credit, of which the amount available is pre-arranged. Credit cards are a plastic card from a particular issuer for purchasing goods and services against a line of credit. Depending on the type of card carried holders can use them to withdraw cash although there are charges for doing so.
Each month you can either pay back the full amount used or some of this amount. Normally you must pay a minimum amount each month and you will be charged interest on the outstanding balance. When applying for or choosing a credit card to carry remember to compare the APRs. Usually the lower the APR on a credit card the less you pay in interest.
Credit cards are a simple, easy to use form of credit we all carry. They may not be the most cost effective form of finance, but they are great for those impulse buys or as a way to purchase some thing now and pay for it later. However credit card issuers charge interest on the credit used and that interest is at a higher rate than any loan the holder may apply for.

Store Cards - Shop Credit

A store card is essentially a line of credit holders can apply for but which can only be used in a single shop or chain of stores. The store card comes with pre-set interest rates and stringent terms and conditions. There may be credit checks on holders but these are usually used to set the level of credit the holder can draw on, and not their suitability.
The store card does not allow the holder to draw cash they can only be used to fund purchases. Like credit cards you will be sent a monthly bill which you can settle in full or decide to pay the monthly amount only. APR's and interest rates are usually higher than other plastic with sharp penalty charges for any defaults or late payments.
A store card may provide savings on items in store but these savings will quickly be swallowed up by interest charged if balances aren't repaid in full. Some consider store cards to be advertising gimmicks, they offer cash off purchases and a line of credit, but the rates they charge are just too high.

Loyalty Cards - Reward Cards

Loyalty cards are a plastic card that rewards its holders for shopping at a particular shop or chain of stores. Loyalty cards can not be used to draw cash as they offer no line of credit to their holders, so they can not be used to make purchases and you can't run up a balance the issuers can charge interest on.
Some loyalty cards offer money off particular ranges of products, so if you buy those items you will save money. This can create a two tier pricing structure where customers can be punished for not carrying the loyalty card, but where you are rewarded for using them. If you shop regularly at a store it makes sense to carry the loyalty card but be aware it does not mean that store will always be the cheapest.
The loyalty cards cost money to produce and the loyalty scheme costs money to run, customers have to be notified of their rewards, so what is the point of the issuers running them?
Well the shoppers habits could lead to contact from targeted sales, you regularly buy this so why not buy that. It you failed to tick the right box on the application your junk mail could increase. Stores say they use the information to stock the items in demand and not to fix prices or push particular sales.
And finally studies in shoppers habits have revealed they are much more likely to shop at a store if they carry their loyalty card, and they could be missing out on bargains at that stores competitors.

Credit Facilities - On Site Finance

Credit facilities is when an establishment be it a business or shop, has a pre-arranged set up in place to process their customers applications for finance. When shopping for goods or services you may find that you are unable to pay the bill immediately. You could decide to pay on your credit card if you have a sufficient balance left, or you could choose to apply to use the stores credit facilities.
You are given an application form which requires your personal details and how much you need to cover your purchase, this is then forwarded to the lenders, where they make a decision on your suitability. Acceptance will still be dependant on your credit history and status but the process is fast and most applications are approved or denied over the phone. If you are accepted you will be allowed to take your purchase away there and then.
However most of these policies come with pre-set rates and with set repayment terms, that do not take account your personal circumstances and credit rating. The rates charged are higher than most other finance products with very steep charges for missed payments and arrears.
Most customers would be able to find a personal loan that charges far less than these policies, even those with some form of problem credit. No sale or deal you need to use credit facilities for is that good, the rates charged could easily account for any savings you think you've made.
Repayments will usually have to be made monthly for a set term and payments might have to be taken directly from customers bank accounts, so care as to be taken to ensure adequate funds are available to cover the withdrawal.

Consolidate Debts

Consolidation or "debt consolidation", is a the term used to describe a method of managing owed debt. Consolidation involves calculating all the outstanding debts together with any arrears and getting a total on how much is owed. Then a personal loan is arranged and used to clear those debts. This then leaves only the latest loan to be repaid, meaning a single rate of interest being charged and is easier to manage and keep track off.
If you carry multiple credit cards, store cards or have used a stores credit facilities to make a purchase and have not cleared the balances you may be interested in consolidating the debt. Consolidation could save a lot in interest charges on the owed debt and should make managing your finance easier.