When you use credit, you are borrowing someone else’s money. You are also entering into a contract.
The organisation issuing the credit (your bank, building society, credit union or finance company) has agreed to lend you money, in exchange for interest rates, fees and charges, and on the condition that you pay them back.
Examples of credit include:
personal loans (eg car, holiday)
Most lenders will set a repayment schedule, which sets out how much money you need to repay and at what frequency (eg per month).
Some lenders will also allow you to top up your repayments voluntarily, which will help you save on interest charges and help you pay your loan off quicker, but ensure you read the fine print as there may be early exit fees. If you miss a repayment you’ll be charged penalty fees, which makes the cost of borrowing more expensive.
If you’re thinking about using credit, read ‘pros and cons of credit
’ for more tips on using credit.