Credit Cards
What is a Credit Card?
Credit Cards are basically a personal loan enabling people to borrow money (against their card) to purchase goods & services.
Credit Cards are typically supplied by banks and Credit Card companies, but other organisations can also provide Credit Cards. Being backed by large financial organisations provides confidence for retailers and has resulted in Credit Cards being one of the 3 most-widely accepted forms of day to day payment (the other 2 being debit cards and cash).
When you apply for a Credit Card the Credit Card company will set a credit limit. This limit represents the maximum amount you can borrow against that card and would typically be in the region of thousands of pounds. Once that limit is reached, you will be unable to use your card to make any other purchases until you've paid back some, or all, of the amount owed.
Every month your Credit Card company will send you a statement detailing the purchases you have made and the total amount you owe them. You will then be usually given 2-3 weeks in which to pay some or all of the balance owed.
One requirement of the signed agreement with the Credit Card company is that the consumer agrees to a minimum repayment per month which is usually equal to 5% of the total outstanding balance or £5. The statement will always show the minimum repayment amount along with a date by which it must be paid.
If you decide to only pay back a proportion of the debt owed then the Credit Card company will add a charge representing interest on the debt and this will then appear on next month's statement.
Interest rates on Credit Cards tend to be quite high. For example, at the time of writing (2010) and with Bank of England base rates at 0.5%, virtually all Credit Card companies levy annual interest rates in the region of 17%.
Due to the typically high interest rates charged, Credit Cards are only really suitable for short-term borrowing.
Please note that it is possible to withdraw cash on a Credit Card (from ATM's etc...) and, in this instance, interest is charged immediately.
Credit Card are accepted in virtually every retail outlet, mail order company and internet company both nationally & internationally.
Credit Cards fall under the auspices of the Consumer Credit Act. As such this provides the Credit Card holder with added piece of mind in the event that the goods or services they've purchased on their card are defective. In this case, if the original trader is unwilling to resolve the situation, the consumer can receive a refund from their Credit Card company. This insurance also applies to the situation when the original trader ceases trading.
If you require any further information on Credit Cards please call one of our advisers on 0800 088 7502
