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It is essential that you understand about credit and how it works. Using credit in a positive manner is possible and it can be used to your advantage. Purchasing a car for example, will often only be feasible with the use of credit; a car is the second most expensive purchase you will make after your home. If you want to drive a car then a repayment figure should always be calculated into your finances. There are a number of options available to you such as a bank loan to pay for the car outright; you will therefore owe the bank for the full amount and own the car. Personal contract hire is also known as leasing a car – this is when you pay a deposit followed by a monthly payment for the remainder of the period. Leasing a car is a long-term leasing agreement that offers you the opportunity to purchase the vehicle at the end of the term or to return it. The most common form of credit is a credit card, this is when you have a credit limit and you can use the card to pay for goods in most places. You make a promise to the credit card company to pay back at least the minimum payment each month. Your balance will incur an interest payment on a monthly basis. Credit cards must be handled with care, use one wisely and do not spend unnecessarily. If you pay the balance in full at the end of each month the interest charges are waived. Store cards work under a similar principle however you may only use them in specific shops. There are two types of loan – secured and unsecured. Secured loans are guaranteed by a house, a car or a cash deposit. If you default on payments the loan company has the right to claim back money from collateral or by repossessing the car. Unsecured loans will have a higher interest rate as they are considered to be a higher risk. You will borrow a set amount of money, an interest charge will be added and you will pay a fixed monthly amount for a set number of months. With any form of credit you can protect yourself by taking out payment protection insurance – this will cover you against losing your job or loss of earnings due to sickness. Monthly minimum payments will be paid by the insurance company for a fixed term or until you get back on your feet. Before taking out payment protection insurance please check it applies to you - this product does not cover self-employed people or anyone with an existing medical condition. As with anything check the small print before you commit. PPI was mis sold to the consumer in previous years; it may be worth looking back at your credit agreements to see if you are one of the people who were mis sold this product as it can be reclaimed. Always seek professional advice before taking out any form of credit or insurance product. If you suspect that you have been mis sold payment protection insurance in the past please search online for a reputable claims management company.
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