Credit providers are companies that offer a range of financial solutions to consumers. Thesesolutionsinclude loans, credit cards, goods and services on credit and overdraft facilities. They areregulatedbythe FinancialConduct Authority, who are an independent body responsible for ensuring the conductof thefirms.
It’s important to research the different options available when looking for credit, asdifferentproviderswill offer different benefits depending on your circ*mstances. Read on to learn about thedifferenttypes ofcompanies that can lend you credit.
Banks
Banks are financial institutions where people and organisations can borrow and invest money.In the UK,variable interest rates on credit can depend on the Bank of England base rate. They willalso varydependingon the borrower’s credit history, account history and the size of the loan.
While fixed interest rates normally stay fixed, they can alter depending on the details ofthe agreement.For example, if the deal had an introductory rate it may change to a different revert-torate, or ifpayments are missed, the borrower may be charged a penalty rate or have the introductoryrateremoved.
The types of credit usually offered at banks range from secured credit, such as car loans andmortgages,tounsecured credit, such as personal loans and credit cards. Secured credit involves using anasset assecurity that may be seized if the loan is defaulted on. Unsecured credit involves no assetand itstermswill depend on the credit history and application details of the borrower.
Supermarkets and department stores
Some department stores offer their own branded credit cards, which can fall under twocategories. Thefirstis store credit cards, which function similar to normal credit cards, but use is usuallylimited to oneparticular chain or group. Store cards can also come with various benefits, such as purchasediscounts,vouchers, and free delivery on goods. The second is credit cards that are simply linked tothe store andcanbe used anywhere. Although these cards are linked to the store, the credit may still beprovided by abank.
Credit unions
Credit unions are an alternative to banks in that they provide financial products andservices, but themoney is normally put back into the local community. Borrowing from a credit union requiresa membershipandthese members may all share something in common, such as their location, jobs, or tradeunions. They mayprovide smaller loans than high-street banks, and can be a cheaper alternative to otherlenders, such aspayday loan companies.
Pay day loan companies
Pay day loan companies are often much more flexible in terms of lending to people with a poorcredithistory. However, this increased risk and the short-term nature of the loan can also lead tovery highinterest rates – while there is now a cap on the amount of interest they can charge, thecost of theloansis still expensive.
Some lenders apply a fee rather than interest which can be around £25 to borrow £100 for amonth, comparethis to credit cards where you might be charged a similar amount in interest to borrow £100for a year.Although pay day loans may be suitable for some, the high interest rate may make keeping upwithrepaymentsmore difficult if the loan is not paid off quickly. Missed repayments will be recorded onyour creditreportand may make it more difficult to get credit in the future.
Businesses offering hire purchase agreements
Some businesses can offer hire purchase agreements that involve putting down a deposit on theitem inquestion before paying the rest in instalments. The item is owned only when the finalpayment has beenmade,and is essentially hired out during the repayment period. Businesses who may offer a hirepurchaseagreementinclude a vehicle dealership, expensive electrical goods companies, or other companies wherecustomersmaynot be able to pay the entire cost of an item at once, such as sofa or high-end furniturestores. Missedpayments can lead to losing the item, even if the majority of payments have been made.
Logbook lenders
A logbook loan lets a borrower take out a loan that is secured against their car, and thelender owns thevehicle until the loan has been fully repaid.
A logbook loan can have high interest rates, and if payments are missed, it could result inthe car beingrepossessed by the lender. Repayment terms can differ depending on the deal, some deals mayonly requiretheinterest to be paid every month before repaying the original sum at the end, while othersmay allow forthefull loan to be paid off earlier.
Peer-to-peer lenders
Peer-to-peer lending connects individuals or companies looking to borrow money withprospective lenderssearching for a high return on their investment. Sometimes known as crowd-lending, theonline financialpartnering websites eliminate banks or building societies as the intermediary, and borrowersmay findlowerrates than offered at a traditional financial institution.
Lenders can receive better return rates than many savings accounts would give, which can makeit adesirablealternative. However, as there is no guarantee the money will be returned, i.e. if borrowersdefault ontheir loans, it may be seen more as an investment rather than a savings method. Peer-to-peerplatformsarerequired to hold a certain amount of capital and in some specific circ*mstances theFinancial ServicesCompensation Scheme may cover some losses.
Paying off the debt
When using credit, making repayments on time can be crucial in determining your financialstability.Interest rates, fees, and other repayment terms can vary amongst different types of lenders,and goingtothe lender best suited to your needs can be the difference between accumulating unmanageabledebt andbuilding up a strong credit history.
To learn more about the factors that can affect your credit history, take a look at our credithygienearticle and you can also check your for your full credit history free for 30 days and£14.95 a month thereafter.
