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There are many different forms of Credit. Here is a list of some of the most popular forms of credit used in Ireland:
- Credit cards
- Personal loans (from banks or building societies)
- Credit Union loans
- Hire purchase
- Credit sale agreements
- Top-up mortgages
Each type of loan is described briefly below.
An overdraft is a way of borrowing on your bank account. Overdrafts are given on your current account so that when your balance is 0 in your account you can still spend up to a certain limit. It is suitable if you have short-term cash problems and for spreading out the costs of expensive events such as Christmas or holidays. Generally the APR on an overdraft is between 8% and 12% and there are other fees associated with overdrafts. Be sure to pay off overdrafts within specific timeframes as the costs add up they also have a habit of becoming permanent.
A credit card allows you to borrow money on a monthly basis. Credit cards are accepted as a means of payment for goods and services in many places around the world. One advantage is that there is no interest charged on borrowings if you pay your full bill within a set number of days. Credit cards are flexible and can be used to pay for items and services that you may buy on-line or by telephone. They are also useful if you need to access cash in another country. They are not suitable for long-term borrowing as interest rates are high. Loans taken out on credit cards are economical only if you pay your bill in full and on time every time you receive a bill. Credit cards can be useful for consumers if you have a problem with an item you have purchased. In this situation your credit card bill or statement can be used as proof of purchase.
Banks and building societies offer personal loans to customers. These loans are suitable for medium and longer term needs, for example, a car loan or a loan for home improvements. Typical APRs currently range from between 7.5% to 11%. Banks or building societies may also charge other fees and charges. Generally, you pay a fixed amount back every month. If your loan is a variable rate loan you may be able to pay more than this back when you have it. This allows you to pay off the loan sooner. It is not advisable to take out a personal loan to cover day-to-day expenses.
Credit Union loans
Credit Unions also offer loans to consumers. You must be a member of a Credit Union before you can take out a loan. Credit Unions are based in the community or workplace and you must be living or working in a particular area or working for a particular employer to become a member. You may need to have saved some money in a Credit Union before getting a loan. Credit Union loans are suitable for short and longer-term needs such as loans for holidays or cars. They are also useful for refinancing other loans. The Credit Union Act 1966 regulates Credit Union loans. The APR cannot be over 12.68% and loan protection insurance is provided on all Credit Union loans. Another advantage of Credit Union loans is that they are very flexible and loan terms are easily negotiated with local credit union officers.
These are hire agreements offered by shops or garages so that you can hire and eventually buy particular items. Items bought on HP are normally expensive items such as a car or furniture or electronic equipment. You do not own the item until the last instalment of the loan is paid. Sometimes the last instalment is called a ‘balloon payment’ which is a larger payment than any of the other instalments. Be sure that you can pay off this final amount before your take up this finance. Hire purchase finance is not flexible.
The store or garage offering the loan is called a credit intermediary. This means that they operate as an agent for a finance company. While the Financial Regulator regulates finance companies, the Office of the Director of Consumer Affairs regulates credit intermediaries (as well as pawnbrokers).
There is a difference between a consumer hire agreement and a hire purchase agreement which is very important. In a hire purchase agreement ownership of the items passes to you after the last instalment is paid. In a consumer hire agreement the goods are hired and will always belong to the consumer hire company.
Credit sale agreements
These agreements are similar to hire purchase agreements in that an item is purchased and paid for in instalments. A major difference is that a buyer immediately owns the goods bought under a credit sale agreement. The APR charged on this type of loan is generally higher than that of credit cards but cannot be above 23%. Like hire purchase loans this type of credit is not flexible.
If you are a homeowner you will be aware that a mortgage is the largest single financial product that you are likely to buy in your life. A top-up mortgage is a way of extending your mortgage to consolidate your debts or to pay for a car or other large purchase. You can pay back short-term debts by getting money secured on your house. Although APRs are low (similar to the APRs charged on mortgages) this type of loan may cost you substantially more in the long run if you pay it back over a longer term. Other charges may be involved in getting this type of loan. These loans – like your mortgage – are secured on your home so it is extremely important that you keep up repayments otherwise your home may be at risk.
Moneylenders are companies or individuals who lend money to other individuals at interest rates of 23% and above. Loans are typically for smaller amounts of between 100 euro and 500 euro. The costs of borrowing money from money lenders are high but this reflects the higher costs of collecting repayments and the higher possibility of the loans not being repaid. Repayments are generally collected in cash each week. Moneylenders can charge a fee for calling to your home to pick up the cash. You can avoid this charge by delivering the money to their office. They can only call between specific times and cannot contact you on Sundays or weekends. If you borrow money from a moneylender you should ensure that the moneylenders is authorised. Do not take money from unauthorised moneylenders. Call 1890 20 04 69 to check if a lender is authorised.