‘Consumer finance’ is a term which includes a range of different financial products which can be used to purchase anything from clothes to household goods or to fund home improvements or other major expenditure.
Different types of consumer and mortgage finance:
A credit card allows you spend up to a pre-set credit limit, which might be a few hundred or several thousands of pounds. If you pay off the bill in full each month, you won’t pay interest on what you’ve borrowed. If you don’t pay off any outstanding balance in full then interest will be charged. In addition to helping you to spread the cost of larger purchases and manage your cash flow, credit cards can protect you against fraud and can also protect you if you have problems with the goods or services you have bought, if these cost between £100 and £30,000.
Store cards are a type of credit card can only be use in one high street chain or group. If you frequently shop in a particular store, you may find this convenient – and you may also be able to take advantage of special deals and discounts which the store or chain makes available to card-holders. You will usually be required to repay the full amount which you charge to your card every month: if you don’t, you will be charged interest.
Catalogue credit (also known as mail order or home shopping) is similar to credit and store card credit as customers are given a pre-set credit limit which they can use to buy a broad range of clothes and household goods. Retailers provide online and hard -copy catalogues from which consumers select items to purchase.
Catalogue credit can sometimes be interest-free so long as the cost of the item is repaid within a set period of time, usually between three and 12 months.
A personal loan is for a fixed amount and you will need to pay back the loan within a specified period. The rate of interest which you will be charged will usually be fixed when you take out the loan and your loan repayments will also usually be a fixed amount each month, which can make it easier to budget. You can make over-payments or pay off a personal loan in full or part, at any time before the end of your agreement without penalty. However, if you repay more than £8,000 in any 12-month period the lender might charge compensation (although the amount the lender can charge is limited by law).
Store instalment credit
This is a form of personal loan typically used to purchase electrical goods, furniture and furnishings. Payments are usually monthly, and may be interest free or follow a deferred start.
If a lender is not sure that you will be able to keep up the payments on a loan, it may ask you to provide the name of someone who will “guarantee” to pay what you owe if you are unable to do so – this is usually a family member or friend. If you miss a repayment, your guarantor will be called upon to make the repayment. Some lenders will only accept a person as guarantor if they are a property owner.
A second mortgage is just like a regular mortgage on your property. It allows an existing homeowner to raise finance by using some of the available equity in their property for a variety of different purposes. For example, to build an extension, carry out home improvements or to fund a deposit to help a family member buy their first home.
Just like a normal mortgage, your second mortgage loan is also secured on your property by a legal "charge", and lenders would be able to repossess your home in case of non-payment. The second mortgage sits behind the higher-ranking charge of your first mortgage lender. You will usually receive advice as part of the application process so that you decide if the mortgage is suitable for you - although you may be able seek an execution-only/non-advised second mortgage too. A second mortgage can be taken out without disturbing your existing mortgage agreement with your current provider.
FLA members recognise that it is difficult and even embarrassing telling someone that you are struggling to meet their repayments, but if you do they will do what they can to help you. Please click on the leaflet below which provides you with a guide and details of various organisations who may also be able to assist you.
Free Money Advice Organisations
Citizens Advice: 03454 04 05 06
To find your local office, look in your phone book under ‘C’ or in the Yellow Pages under ‘Counselling and advice’, or from www.citizensadvice.org.uk
National Debtline: 0808 808 4000 (this call is free).
StepChange: 0800 138 1111 (this call is free).
Money Advice Scotland: 0141 572 0237.
Advice4Debt Northern Ireland: 0800 917 4607
Advice UK: 020 7469 5700
The Money Advice Service: 0300 500 5000 or www.moneyadviceservice.org.uk
If you are a student, contact the Student Welfare Officer at your students’ union