Credit

Buying on credit can be risky business. This is because you are buying something and agreeing to repay it in the future, but what happens if things change and you can no longer afford the payments or loan instalments?
In Scotland you can get credit from the age of 16 but you may be asked to provide two guarantors as insurance. Credit is a tricky business and our advice is to avoid it at all costs. Try to save up for what you need instead of borrowing money.

Types of Credit
There are lots of different types credit available, these include loans, store cards, hire purchase, catalogues Loans -

Credit Sale
With a credit sale you buy the item/goods at cash price and pay the cost of the item over time, usually in set instalments.
However in all cases you will have to pay interest on the amount of the item or credit you have borrowed.

With a credit sale you are the legal owner of the goods, this means you cannot return the item if you change your mind and the supplier cannot repossess the item if you fall behind in your payments. However they can take legal action to reclaim their losses.

Hire Purchase (H-P)
Hire-purchase is a type of credit where you agree to rent an item and pay for it in instalments, including interest. However you do not legally own that item until the last payment has been made and you are only renting it until then. This can be risky!

For example, if you agree to a H-P of a guitar at £240 and you agree to pay 6 instalments of £40 plus interest and you miss the last payment then the company can repossess the guitar and you will lose all the money you have already paid!

Overdraft
An overdraft is a service offered by banks to select customers which allows you to take extra money or ‘borrow,’ a set amount of money from your account when it is empty. An overdraft has to be arranged with the bank and you must stay within the arranged overdraft limit.

In most cases you will need to pay interest on the money you have ‘borrowed’ from your overdraft, unless you are a student and you have a student overdraft which states you don’t pay interest until approximately 1 year after your graduation but you would have to check with your bank to make sure this is the case for your own student account.