Types of debt.

Credit Cards.
Credit cards entitle the holder to purchase goods and services from organisations that have an arrangement with the card issuer. Card holders can purchase items up to a set credit limit. Credit is sometimes available interest free for a set period (except for cash withdrawals). Statements are usually issued monthly by the credit card company to the holder and must be paid in full to avoid interest charges. These interest charges differ greatly between credit card issuers.

Charge account.
The customer is provided with a card that has a pre-determined limit. Repayments will be by flexible monthly payments. This is a running account agreement with an interest rate likely to be higher than other credit cards.

Catalogues/mail order.
Catalogue buying is very popular, not only for purchasing clothes but also for obtaining consumer goods. Catalogue companies produce a glossy brochure – ‘the catalogue’ – featuring their products. This they distribute to agents who act on their behalf in selling the goods to customers or to individual customers direct. Payment is made by weekly instalments until the cost of the goods purchased is paid off. This is generally a fixed-sum credit agreement.

Store Cards.
Most of the major High Street shops now offer credit facilities to customers to encourage the "easy" purchase of goods. There are a number of different forms of credit used. Sometimes, interest free credit, or "Nothing to Pay for a Year" will be offered. If you're already in debt, you could be storing up trouble for the future, so please be careful and thinnk twice before signing on the dotted line.

Hire Purchase.
A hire purchase agreement is a hire agreement which contains an option to purchase clause. It is normally an agreement where a customer selects goods from a supplier who then sells them to a finance company which hires them to the customer, generally with monthly payments to be made, under the HP agreement.

The goods subject to HP agreement remain the property of the creditor until the final instalment and the option to purchase fee have been paid, so even up to the final payment, you may lose the goods if you cannot make it.

Also, until this has been done the debtor may not dispose of or sell the goods and may be liable to criminal prosecution if this is done without the creditor's permission. This will however, often be given, if the debtor undertakes to remit the proceeds of sale.

Mortgage.
A mortgage is given by a building society or bank for the purposes of buying residential or commercial property.

An extra mortgage on the property, called a second mortgage, can be given, for example, for home improvements. The lender may charge a higher rate of interest on the second mortgage. If you do not keep up repayments you are likely to lose your home.

Personal loan account.
The customer is offered a personal loan with a fixed rate of interest built in at the beginning of the loan. Repayment is by a fixed monthly payment over an agreed period of time.

(The interest rate on all the above options is generally relatively high.)

Unsecured loan.
A separate loan account is opened for the customer. Interest is built in from the beginning and repayments are normally paid on a monthly basis, from their current account by Standing Order to the loan account. An early settlement rebate will normally be available where the loan is repaid in full before the expiry of its agreed term.

Loan sharks.
It is a criminal offence to loan money without a credit licence. There has been a great deal of publicity about ‘loan shark’ creditors who charge extortionate rates of interest (from 500% into the millions). They often use harassment and threats of violence to enforce payment or take benefit books as security for loans. Any creditor indulging in these practices should be reported to both the police and the local Consumer Protection/Trading Standards Department

Borrowers / clients who complain, should not be named without their specific consent.

Pawnbrokers.
Recent recessions have given this old fashioned business a new lease of life. Goods are taken in as security and called ‘pledges’.

There is still a class difference in the pawn-broking trade.

Those operating up-market and charging low rates of interest for valuable ‘pledges’ are known as ‘City Pawnbrokers’ and those operating down-market are historically known as ‘Industrial Pawnbrokers’.

It is another fixed-sum agreement typically costing between 25% - 200% APR, so debts can mount rapidly if using this type of service.

There are alternatives. The rest of this site provides a wealth of information about how to reduce your debt, rather than resorting to consolidation loans or pawnbrokers etc.