Money and credit - what type of plastic?
If you decide to use a card to buy goods or
services use this list to decide which one is best for you. There are hundreds
of cards available but most fall into one of these categories. To add further
confusion you'll find that card issuers offer gold, platinum and ordinary
cards – these are the same types of cards with different conditions and
benefits.
For further advice on money and credit, see menu at
bottom of this page.
Debit cards
These take money directly from your bank account, they're not credit cards
but an alternative to cash or writing a cheque. Linked to your bank account,
debit cards often also work in cash machines and as a cheque guarantee
card. Switch and Visa operate these schemes for the banks.
Charge cards
If you use a charge card you'll be sent a bill each month which you usually
have to pay in full – so again, this isn't a credit card. You'll generally
be charged an annual fee.
Budget,
option or store cards
Issued by stores or retail groups, these offer a form of credit. You can
use the card to buy goods at the store and will be sent a monthly bill.
Paying back the money you've borrowed varies. Some cards will demand a
minimum monthly payment others a fixed payment by standing order or direct
debit. You will normally pay interest if you don't pay back all you owe
each month. Remember to compare APRs. Usually the lower the APR the less
you pay in interest.
Credit cards
You can use a credit card to borrow money to buy things straightaway and
then decide over what period to repay the money you owe, plus interest.
You get a monthly statement showing what you have bought and how much you
owe. Each month you can pay back the full amount (usually free from any
interest) or only some of the amount. Normally, you must pay at least £5
or 3-5 per cent (whichever is greater) of the money you owe each month
and you will be charged interest on the outstanding debt each month. Remember
to compare APRs. Usually the lower the APR the less you pay in interest.
Credit cards can usually be used in cash machines but you are likely to
pay extra if you do.
Electronic purse cards
A relatively new scheme where you load a card with cash and then use it
as an alternative to cash. Generally these cards are used for small purchases
or to buy on the internet.
A few points to remember
-
The Annual Percentage Rate of Charge (APR) is an expression of the total
charge for credit for each year of a credit agreement.
-
Using cards to borrow money can be expensive and is a commitment. Think
carefully before you use one and make sure that you can afford the repayments.
-
Compare the APR. The figures vary enormously and usually the lower the
APR the less interest you'll pay.
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Stay within your credit limit.
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There are advantages to using credit cards when buying by mail order or
on the internet. If your goods or services are misrepresented or don't
arrive you may get a refund from the card issuer. Also the Consumer Credit
Act places a statutory restriction of £50 on your liability if your
credit card is lost or stolen.
-
If someone else uses your credit card details to buy goods by mail order
or the internet, you will not be liable at all.
Other pages in this section
Source: The Office of Fair Trading, www.oft.gov.uk
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