Credit Terms

Common terms used by loan companies & credit agencies etc.

1. Who are creditors and debtors? The creditor is the person supplying the credit, normally a bank or building society while the debtor is the customer.
2. If the debtor fails to make the agreed repayments they will have defaulted on the credit arrangement. Invariably the debtor will receive a default notice from the creditor, if this happens seek help from your local Citizens Advice Bureau or Trading Standards office.
3. Restricted use credit is credit which can only be used for one purpose and made payable to the supplier of the product. A good example is a car loan. Unrestricted use credit can be used for anything.
4. If you borrow on unsecured credit terms it means the creditor has no legal right to take your house if you default on the payments, you can only be sued for the money. Secured credit means you will have had to put up some physical asset, normally the house, which can be taken as payment if you default.
5. Credit rating is an assessment of an individual's credit worthiness, how safely a lender can feel in letting them borrow money. It is normally carried out by specialist credit reference agencies.
6. A credit sale agreement is the most common form or credit arrangement when purchasing goods and involves the customer taking the products and legal ownership. Unless it has been secured the creditor can only sue for the outstanding amount if the debtor defaults on the terms.
7. A hire agreement is based purely on the hiring of goods for a purpose and the customer never owns them. The creditor who has hired them out in the first place can repossess the goods and sue for outstanding debts if the debtor fails to pay up.
8. Hire purchase is different and very often associated with cars. The customer will make regular payments but does not actually qualify for legal ownership until the end of the agreement when they can exercise what is known as their "option to purchase ".
9. A credit note is supplied to the customer by an organisation expressing its "indebtedness". A good example is when goods are taken back to a shop because they are not wanted and the retailer agrees to give a credit note rather than a refund. This note allows the customer alternative goods up to that value from the shop.