At some stage in life most people are likely to borrow money. There are many different types of credit and loans. You should get the right loan for your needs and should shop around for the best loan.
Consumers who borrow money are protected in legislation by the Consumer Credit Act 1995. This Act covers all types of credit and credit institutions must comply with this law. The Act also prescribes the ways in which credit may be advertised. If you are having trouble paying off a loan the Money Advice and Budgeting Service (MABS) may be able to help.
Generally, banks, building societies and other credit institutions charge for the use of borrowed money. This payment is called 'interest' and it is calculated on the amount of money you borrow and the length of time that you borrow it. You may also have to pay fees to cover administrative expenses on your loan.
Before you borrow money
If you are borrowing money or buying goods it is important that you ensure that you can afford to pay back what you borrow. Be realistic about your living costs. Make sure that any money you have left after you pay for essentials is sufficient to cover the cost of a loan. Check whether you can save enough money to buy what you need rather than getting a loan. You can also reduce the amount that you may need to borrow by using money that you have saved.
Get a loan to suit your needs
There are many different types of loans and credit. Each type of credit is suitable for a different purpose. Some are more suited to short-term borrowing and others are more suited to medium to long-term borrowing.
Shop around for the best value
Banks, building societies and credit unions all offer a range of loans. When comparing charges for the use of borrowed money, interest on loans must be presented as the Annual Percentage Rate (APR). The APR states what percentage of the amount you borrow you will be charged in addition to paying back the loan amount. It is important that you compare like with like. Loans can be paid back over different terms or lengths of time. You may think that you are getting a good deal on a loan with a low APR but if you are paying more instalments over a longer period of time you may find that it will cost you more. Cost of credit is another way of comparing loans which looks at the total cost of the loan.
The Central Bank authorises banks, building societies and credit unions. You should only borrow from an authorised financial service provider. This protects you and your money from unscrupulous lenders. If you are unsure if the company that you are dealing with is authorised contact the Central Bank to find out.
Types of credit
There are many different forms of credit including:
- Overdrafts: An overdraft is a way of borrowing on your bank account. Overdrafts are given on your current account so that when your balance is 0 in your account you can still spend up to a certain limit.
- Credit cards: A credit card allows you to borrow money on a monthly basis. There is no interest charged on borrowings if you pay your full bill within a set number of days. Credit cards are flexible and can be used to pay for items and services that you may buy on-line or by telephone. Credit cards are accepted as a means of payment for goods and services or for accessing cash in other countries. They are not suitable for long-term borrowing as interest rates are high. If you have a problem with an item you have purchased your credit card bill or statement can be used as proof of purchase.
- Personal loans (from banks or building societies): Banks
and building societies offer personal loans to
customers. These loans are suitable for medium and longer term needs, for
example, a car loan or a loan for home improvements. Banks or building
societies may also charge other fees and charges. Generally, you pay a
fixed amount back every month. If your loan is a variable rate loan you may
be able to pay more than this back when you have it. This allows you to pay
off the loan sooner. It is not advisable to take out personal loans to
cover day-to-day expenses.
- Credit union loans: Credit unions also offer loans to consumers. You must be a member of a credit union before you can take out a loan. Credit unions are based in the community or workplace and you must be living or working in a particular area or working for a particular employer to become a member. You may need to have saved some money in a credit union before getting a loan. Credit union loans are suitable for short and longer-term needs such as loans for holidays or cars. They are also useful for refinancing other loans. Some credit unions are offering a new type of loan called an It Makes Sense loan. This loan is aimed at people getting social welfare payments who repay the loan through the Household Budget Scheme.
- Hire purchase: This is a hire agreement offered by shops or garages so that you can hire and eventually buy particular items. Items bought on hire purchase are normally expensive items such as a car or furniture or electronic equipment. You do not own the item until the last instalment of the loan is paid. While the Central Bank regulates finance companies, the Competition and Consumer Protection Commission regulates credit intermediaries (as well as pawnbrokers). In a hire purchase agreement ownership of the items passes to you after the last instalment is paid. In a consumer hire agreement the goods are hired and will always belong to the consumer hire company.
- Credit sale agreements: These agreements are similar to hire purchase agreements in that an item is purchased and paid for in instalments. A major difference is that a buyer immediately owns the goods bought under a credit sale agreement. The APR charged on this type of loan is generally higher than that of credit cards but cannot be above 23%. Like hire purchase loans this type of credit is not flexible.
- Mortgages and top-up mortgages: If you are a homeowner a mortgage is the largest single financial product that you are likely to buy in your life. A top-up mortgage is a way of extending your mortgage to consolidate your debts or to pay for a car or other large purchase. Although APRs are low, this type of loan may cost you substantially more in the long run if you pay it back over a longer term. These loans - like your mortgage - are secured on your home so it is extremely important that you keep up repayments otherwise your home may be at risk.
- Moneylending: Moneylending is the practice of giving cash loans or supplying goods or services that are repaid at a high level of interest over a short period of time. Banks, building societies, insurance companies and credit unions are not considered moneylenders. Moneylenders are generally either individuals or companies whose main business is to lend money.
Credit history and your right to privacy
If you have ever used credit you will have a credit history. A credit institution can refuse to give you a loan if you have not complied with the terms and conditions of previous loans. The Irish Credit Bureau keeps a database of all borrowers and credit institutions can check the status of previous loans taken by a potential borrower. You can find out more about your credit rating and the Irish Credit Bureau.
When you have entered into a credit agreement, the Consumer Credit Act 1995 protects your rights.Your entitlement to privacy is protected and there are rules about lenders contacting you. These restrictions are legally binding on all lenders and are designed to protect your privacy as a consumer. For example, the Act prohibits visits or telephone calls from an authorised financial institution about the agreement to you without your consent at any place between 9pm and 9am weekdays, or at any time on Sundays or public holidays. Calls or visits to your place of work are prohibited unless you live there, or if reasonable efforts to contact you have failed. Only the person(s) involved in the credit agreement may be contacted (unless other arrangements have been made).
Where to apply
The Competition and Consumer Protection Commission (CCPC) provides information and education about the costs, risks and benefits of financial products and promote the interests of consumers of financial products. The CCPC provides a range of consumer guides and information on financial products:
Contact information for the network of Money Advice and Budgeting Service (MABS):