Credit is a way of borrowing money. It means ‘buy now, pay later’. Buyers borrow money to buy goods and pay it back later usually with interest. Often it is used to buy large items like houses and cars but can be used to buy consumer goods like furniture or electrical goods, if the buyers do not have the money to pay for them immediately.
• Credit costs more than paying cash. The credit company or bank charges the borrower interest to cover the cost of borrowing which can be expensive.
• You must be over 18 to get credit. • If a family take on too many credit commitment it can be dangerous because if circumstances change they may not be able to make repayments. The item may be repossessed, i.e. taken back.
Discovery Learning
Find out what a mortgage is, and the difference between a bank loan and an overdraft. Share your findings with the class.
Did You Know? The Consumer Credit Act 1995 protects the consumer in all credit agreements.
Forms of credit • Hire purchase: This is an agreement whereby a person hires goods for a period of time, by paying instalments, and will own the goods at the end of the agreement if all instalments are paid.
• Bank overdraft: This is when a bank arranges to allow the customer to spend more than is in their account, up to an agreed amount, without paying interest.
• Loan: A loan is the lending of money from a bank, building society or credit union to an individual or organisation. This loan is paid back in instalments with interest over a set period of time.
• Credit card: A credit card is a payment card issued to an individual so they can pay for goods and services based on the cardholder’s promise to pay the credit card company or bank back the amount (plus other agreed charges). Pay off fully when billed to avoid interest.
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Strand 2: Responsible Family Living Section 1: The Efficient Home
