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Most retailers offer credit 'deals', especially
for large purchases like cars and furniture. These deals allow
you to buy an item and make regular payments over a period
of time. Some of these deals are interest-free (only charging
interest if you don't pay it all off by the deadline), but
most charge interest. This means, in the long run, you end
up paying more than the item was actually worth. And the longer
you take to pay it off, the more expensive the purchase becomes.
Plus, if you run into trouble with making your payments, the
retailer might be able to repossess the goods you've purchased.
You can get a credit card from a bank or building society
(many large companies, charities and supermarkets now issue
credit cards, too). Whenever you use your credit card, you
are in effect taking out a loan from the credit card company.
Once you've made a purchase, you'll have some time before
your statement arrives, at which point, you'll be given a
deadline to pay the outstanding sum. You can pay the full
amount and, as a result, get free credit. Or, if you can't
pay, you'll have to pay a minimum sum every month and the
company will charge you interest. Again, this means you end
up paying more than the item actually cost. And the higher
the interest rate, the more you'll end up paying.
Both credit cards and agreements advertise their APR. This
is the Annual Percentage Rate of charge and is a standard
measurement for showing how competitive a loan is. Usually,
the lower the APR, the better the deal (i.e. the less interest
you pay). If the charges included in the APR vary, your repayments
can go up or down every month. Fixed-rate credit agreements
have fixed-rate repayments (a set sum) and this might be better
if you're on a tight budget.
Whether you get a credit card or a credit agreement
with a retailer, you'll have to fill in one or two forms,
giving information such as your name, address, age, date of
birth, occupation and salary. You'll probably have to provide
some identification, too.
The credit company will then check that you haven't got a
record of debt or poor credit, before they can give
the go ahead.
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