Types of Credit
There are many different types of credit which if not handled correctly can land you in trouble.
Credit cardsThis is where a lender gives you a card to use to purchase goods. Each month a bill is sent where you can pay all of the balance or just a minimum payment. The interest rates on credit cards are generally quite high and this is an expensive way of borrowing.
Hire purchase (HP)Hire purchase is where you in effect renting an item until the loan is paid off. This is again an expensive way of borrowing as you usually end up paying more than the actual price of the goods in the first place. Usually used for cars, white goods etc.
OverdraftThis is where the bank lets you take out more money than is in your account if you have an agreed overdraft. If you go over the limit there are high charges which are taken out of the account at the beginning of the month. This can end up being a never ending circle and quite difficult to get out of.
Secured LoanThis is where you have to put your personal property up as collateral for the loan. A typical example of this is a mortgage. If payments are not then your home could be repossessed. Interest rates on these types of loans tend to be lower than unsecured loans.
Unsecured loans/Personal loansAn unsecured loan is a way of borrowing a larger sum of money quickly. It is important to make sure you can keep up the monthly repayments as you could end up being taken to court. There are many different types of lenders so shop around for a good deal.
PawnbrokerThis is where you take your jewellery or other personal possessions and the pawnbroker will give you a sum of money for them. If you do not pay back the money within a certain time then the pawnbroker can keep the items and sell them on.
Creditor
Someone you owe money to.
Unsecured lending
Total loan & credit card debts excluding your mortgage and any hire purchase.
Country
The country you currently live in.
Insolvency Practitioners
Also known as an IP, a person who specialises in formal insolvency cases.
Valuations
The process of determing the current value of an asset.
Equity
The difference between the market value of a property and the claims held against it.
Lender
Someone you owe money to.
Eviction Order
A court order by which a person may be evicted.
Arrears
An unpaid and overdue debt.
Disposable Income
The amount of income left to an individual after taxes have been paid, available for spending and saving.
Statement of Affairs
A financial report showing assets and liabilities at expected liquidation values and shareholders' equity.
Insolvent
Unable to meet debt obligations.
Secured Loan
Money borrowed using goods or property as a guarantee.