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Understanding Different Types of Credit Facilities: My Rights and Legal Responsibilities

This document discusses different types of credit facilities including bank loans, hire-purchase agreements, vehicle finance, home loans, credit cards, and loans from specialist companies. Bank loans typically have standard terms but can change interest rates, while hire-purchase agreements for items like cars require deposits but result in paying over double the item's value due to high interest. Vehicle finance from banks has more favorable rates than ordinary loans but the vehicle can be repossessed if payments are missed. Home loans are long-term agreements where the property is security, but interest rate increases can cause repayment problems. Credit cards involve charges and interest if balances aren't paid monthly. Specialist loans may fulfill dreams but have high costs and hidden fees.

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Kamal Mehra
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69 views1 page

Understanding Different Types of Credit Facilities: My Rights and Legal Responsibilities

This document discusses different types of credit facilities including bank loans, hire-purchase agreements, vehicle finance, home loans, credit cards, and loans from specialist companies. Bank loans typically have standard terms but can change interest rates, while hire-purchase agreements for items like cars require deposits but result in paying over double the item's value due to high interest. Vehicle finance from banks has more favorable rates than ordinary loans but the vehicle can be repossessed if payments are missed. Home loans are long-term agreements where the property is security, but interest rate increases can cause repayment problems. Credit cards involve charges and interest if balances aren't paid monthly. Specialist loans may fulfill dreams but have high costs and hidden fees.

Uploaded by

Kamal Mehra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Understanding different types of credit facilities: my rights and

legal responsibilities

Bank Loans Hire-purchase Agreements


Bank loans are usually determined by your salary and your Some people buy cars, furniture or appliances, using an
bank history. Loans from banks usually have standard HP contract. The seller arranges finance for you from
terms in their contracts, but look out for “the small print”. banks that specialise in this type of loan. You are usually
Check the admin charges, whether interest rates can be
required to pay a deposit and sign an agreement where
changed at any time, and any other conditions. You might
the loan is registered over the items that you buy.
be forced to take out life insurance to get the loan – an
added expense! Some typical bank loans are:
HP is expensive, and you usually end up paying more

Bank Overdraft than double for the item. If you cannot pay for a month

You can arrange a bank overdraft on your cheque account or two, you run the risk of having the item repossessed.
– usually the account your salary is paid into. This means You will then have nothing to show for all your months of
they will let your cheque account be overdrawn. The repayments.
interest rate is a lot higher than the prime interest rate.
You do not have to repay the overdraft within a fixed time, Vehicle Finance
but the bank will review it at least once a year, and can
Some banks have special divisions that only provide loans
withdraw it at any time.
for motor vehicles. The interest rates are more favourable
than ordinary loans. If you have an accident or your car is
Revolving Credit
stolen, you would still need to repay the loan, unless you
This will be a fixed amount of money that the bank
agrees to loan you. You don’t have to take it all at once, had insurance cover. If you stop paying your loan, your

and as soon as you pay some back, you can re-borrow car will be repossessed.
that amount. This kind of loan is flexible, but has a high
interest rate. Home Loan or Bond
Most people take out a home loan or mortgage bond
Bank Loans to buy or build a house. This is a long-term agreement
Depending on your circumstances, you might qualify between you and the bank, where the loan plus interest is
for a longer-term loan, where you have to make fixed
repaid over 20 or 30 years. The bond is legally registered
repayments every month. The bank might ask you to
over your property and if you can’t repay the loan, it
provide something as security for this loan, such as a piece
acts as the bank’s security. Usually the interest is one of
of land. If you cannot repay the loan, the bank then has
the lowest rates that you will get, but it is linked to the
the right to keep your asset that you offered for security.
bank’s prime interest rates. If interest rates go up, you
Credit Cards could find yourself not able to pay the higher repayment
If you have a good credit history and a regular income, amount. In the late 1990s, home loan rates rose to 25%,
you might qualify for a credit card at the bank. The banks making many people unable to repay their home loan
set a limit based on your circumstances. You can use your repayments. This meant that they lost their houses. You
credit card to buy goods in most places. If you don’t settle are also usually expected to take out life insurance for the
the amount in full at the end of the month, you will be
value of the bond.
charged interest at fairly high rates. There are annual card
charges and optional lost card insurance charges.
Paying extra into your home loan each month, or paying
it off sooner, dramatically saves you interest. It is a good
Specialist Loan Companies
There are many loan companies around, encouraging you idea to put any extra bonuses or money into your bond.

to buy your dream holiday, add on a patio to your house, Usually you can arrange with the bank to withdraw any
or fulfil other dreams now and pay later. But beware, they extra payments if you need it. In this way you can use
are expensive and have hidden costs. your bond to keep your savings in.

ON THE
MONEY

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