🔹 CREDIT CARDS: What You Need to Know
💰 Interest & Charges
- No interest if you repay the full balance by the due date.
- Interest is charged immediately on cash advances, even if paid in full later.
- Missing payments leads to extra charges and added interest.
- Most expensive debts are paid off first when you make a payment.
📉 Minimum Payments
- Paying only the minimum increases the total cost.
- Consider using a repayment calculator (like on Which?) to see how much faster you could repay by increasing payments.
- Credit card companies will warn you if you pay only the minimum for too long.
💸 Using Your Card Abroad
- Charges often apply for purchases and ATM withdrawals abroad.
- Let your provider know before you travel to avoid your card being frozen.
- Exchange rate fees and foreign transaction fees may apply.
🏦 Balance Transfers
- Can help reduce interest if you switch to a 0% deal.
- Check if new purchases have a different (higher) interest rate.
- You’ll often pay a transfer fee (~2%).
⚠️ Late or Missed Payments
- Default charges typically around £12. Challenge higher charges.
- Late payments add interest and fees. Set up direct debits to avoid missing deadlines.
✉️ Credit Card Cheques
- No longer sent unless requested.
- Treated like a cash advance (higher interest, added to balance).
🔐 Credit Card Insurance
- Payment Protection Insurance (PPI): Covers repayments if you’re ill, unemployed, etc. Not always suitable—check exclusions.
- Card Protection Insurance: Helps if your card is lost/stolen, but reporting the loss is still your responsibility.
🔹 BORROWING MONEY (CREDIT DEALS)
🛍️ Shopping Around
- Compare multiple lenders before signing anything.
- Look at both the APR and terms/fees.
- Ask for documents to take home and read carefully.
📊 Comparing Costs: Key Things to Check
- APR (Annual Percentage Rate) includes interest + some fees.
- Lower APR = cheaper deal, but compare same types/terms.
- Example: Borrowing £1,000 for 10 years at:
- 5% APR = £1,266 paid
- 25% APR = £2,523 paid
📈 Interest Types
- Fixed: payments stay the same.
- Variable: payments can go up/down.
💸 Fees & Charges (Not Always in APR)
- Arrangement or transfer fees.
- Early repayment (redemption) penalties.
- Missed/late payment charges.
- Higher prices for goods bought on credit.
📄 Understand the Agreement
- Includes: repayment terms, interest rate, total cost, and your rights.
- Secured loans: home/property may be at risk if you miss payments.
✅ Can You Afford It?
- Do a budget: income vs expenses.
- Use tools like the Money Advice Service Loan Calculator.
- Stretching repayments over more years lowers monthly costs—but increases total repayment.
🛡️ Insurance
- Payment Protection Insurance (PPI) may help if you can’t work.
- Not suitable for self-employed or pre-existing conditions.
- Lenders must wait 7 days after loan approval before offering PPI.
📋 Checklist: Before You Borrow
Personal questions:
- How much can I repay each month?
- Will my situation change soon (job, income, etc.)?
- Do I understand the repayment method?
Credit deal questions:
- What’s the total cost?
- Is it the best APR available?
- Any extra charges not in the APR?
- Will the interest rate stay the same?
- What if I miss a payment?
- Can I pay it off early?
- Is security required (e.g. my home)?
- Can I take the agreement home to think?