Finance – Advanced
Consumers, Business and the Economy
Economics is basically the study of how society decides what and how it produces and as it is believed that our wants are infinite are resources are actually limited. All consumers, therefore, have to make a series of choice about what they want to buy and own.
There are many different factors that affect the economy as a whole such as:
Each Government will have a series of economic policies and they have 4 main objectives: low unemployment, low inflation, high economic growth and an equilibrium for balance of payments. By looking at these 4 factors, performance of the UK's economy can be assessed.
All companies are part of the economy within the UK and they are, therefore, affected by both internal and external factors. The internal factors are in the Companies' control - staffing levels, costs etc, however external factors influence the companies' success but are outside of their control.
The UK has a mixed economy because we have both a private and a public sector.
The public sector provides goods and services to the community through public corporations, local government and other statutory agencies. There is no real profit motivation as funding comes from taxes and government borrowing.
The private sector consists of businesses that are owned by private individuals who use their ownership to achieve objectives such as income through profits.
There are different forms of business within the private sector such as:
A major influence on any business is the level of competition within a particular industry. Competition is good for consumers as it helps to regulate the prices that businesses charge for the goods and services they well. The competition that a business faces constantly changes as new businesses join or leave the industry.
There are different levels of competition:
There is a body of law in place that aim to counter any push by firms to reduce or eliminate competition. Competition is believed to be good for the consumer and there are laws which prevent anti-competitive behaviour and which regulate a reduction in number of businesses. Example - Restrictive Trade Practices Act and the Competition Act.
At the moment you might not pay much attention to the Chancellor's budget speech in the House of Commons - unless he happens to raise the price of something that you spend your money on.
Taxation is the Government's way of getting its income. It uses the money raised to provide essential services like education, health, defence and social services. The Chancellor's job is to balance the amount he gets from taxation with the amount the Government plans to spend. This process of planning income and spending is known as budgeting.
The law relating to Credit
When looking at the main types of credit agreement and the way they work, we've so far avoided any specific mention of the law. There are, in fact, very strict rules about lending and borrowing and most of them are laid down in the Consumer Credit Act. They're there to protect you!
Most of the rules in the Act apply to credit agreements, whatever the type of credit, where the amount you borrow (the amount of credit) is £25,000 or less. So most credit deals you're likely to take on in the future will be covered.
Before you take out a credit agreement
Before you get as far as taking out a credit agreement, the Consumer Credit Act protects you by having rules about:-
Licensing - The Act says that nearly everyone in the business of lending money, introducing their customers to credit deals or even hiring their goods out for long periods, must have a special licence. These licences can only be granted by the Office of Fair Trading in London and then only if the Director General of Fair Trading is satisfied that the person or firm applying for one deserves it.
Advertising - Advertising can be very persuasive. Phrases like.- 'No Deposit' and "This could be yours for only £5 per week" can be very tempting, So it's a rule that anyone advertising credit must tell you the truth about the deal they're offering you.
How to Shop Around for Credit
These are the things to look for and ask about and compare.
Buying on credit when you're under 18
It's illegal for traders to send anything through the post to people under 18 inviting them to borrow money or obtain other credit facilities. You may also find that if you approach shops about buying on credit when you're under 18, they will often be unwilling to consider doing business with you.
There is a good reason for this! If you don't keep up your repayments and you're under 18 (what the law calls a minor), the shop or lender may not be able to sue you successfully to recover their money. This is because the law says that if a minor fails to pay his debts, the person to whom he owes money will only succeed in suing if the goods bought with the money lent were real "necessaries" - i.e. things the minor really needs rather than just things he or she wants.
Because of this, many traders prefer to deal with the over 18s where expensive items are concerned or ask someone to stand as guarantor. That way, they make sure they get paid one way or another.
What if your credit application is turned down?
When you apply for credit, the lender will usually want to make sure that you are 'credit worthy'. In other words, that lending money to you is a safe bet. In order to check your creditworthiness the lender will often consult a Credit Reference Agency, which may have some information about you.
Credit Reference Agencies collect and store information about people's financial standing that they pass on request to their clients - the people from whom you have asked for credit. The agencies must have a license under the Consumer Credit Act. They do not advise the lender on whether you may be a good risk or not, or comment in any way on the information which they provide.
This information may help the lender in deciding to give you credit. It may however, also make him think again.
If this happens, you can't insist on being given a loan, nor does a dealer or lender have to tell you why you've been turned down. But they must, if you ask in writing, tell you the name and address of any Credit Reference Agency, which they consulted about you.
The law says that you can find out exactly what a Credit Reference Agency has on file about you by writing to the Agency. If there's something on your file, which is incorrect you can have it put right. But do remember that the lender may have turned you down for some reason having nothing to do with what is on your Credit Reference Agency file.
When you take out a credit agreement
Comparing what's on offer, applying for credit and perhaps having your creditworthiness checked by the lender are only the beginnings of a credit deal. Before you're actually given credit, you'll be asked to sign a credit agreement. Again, there are rules set down in the Consumer Credit Act which aim to protect you. These include rules about:-
* Information which must be included in a credit agreement - A credit agreement must set out the terms of the deal you're taking on in detail and explain your rights under the agreement. For instance, if you're taking out hire purchase to buy a TV, the agreement must show:-
If you're taking out a credit card agreement, it must show your credit limit or tell you how it will be worked out, give you details of how your monthly payment will be calculated and tell you the APR.
NEVER SIGN A BLANK FORM. Make sure all the financial details have been filled in first. Read it carefully and make sure you understand it. If you don't, seek advice before you sign it.
This briefly explains your rights under the Consumer Credit Act and tells you where to go for advice if you want to know more about them. DON'T SIGN A CREDIT AGREEMENT IF YOU HAVE ANY DOUBTS.
* Copies of the Agreement - You should be given a copy of your agreement as soon as you sign it and usually you'll receive a second copy through the post within about a week. Keep these copies somewhere safe - you may need to refer to them one day.
* Changing your mind when you sign at home - If you sign a credit agreement at home, you may have a few days in which to cancel. This short 'cooling-off period' only applies where the trader has discussed the deal with you in person (not on the telephone) and you then sign the agreement at home or anywhere other than at the trader's premises.
The cooling-off period, at the moment five days, starts from the day that you get your second copy through the post.
Your agreement should give you clear details of your cancellation rights - read them carefully. When you sign a credit agreement in a shop, you don't have any 'cooling-off period'.
Once you've taken out a credit agreement - Once you've taken out a credit agreement, there are still problems you may come up against and it's as well to think about them before you have to deal with them. For instance:-
What if something you've bought on credit turns out to be faulty? If this happens to you, don't stop making payments. Even though you may have a valid complaint, you'll be putting yourself in the wrong if you break your side of the deal.
When you have a hire purchase or credit sale agreement, your agreement is with the finance company and if things go wrong, you must make sure they know about your problems. Don't just tell the shop you bought the goods from. Legally, it's the finance company that you're dealing with.
Often, both the company who lent the money and the shop you went to for the goods or services have to help you if something goes wrong with what you've bought. This is the case with loans that the retailer arranges for you, or credit card purchases, where the goods cost more than £100. This is very important because it means that if the shop has closed down or gone out of business, you can claim against the lender. This is known as 'equal liability'.
If necessary, get some advice from your nearest Consumer Protection/Trading Standards Department or Citizens' Advice Bureau. They'll tell you how you should go about making your complaint - but do it quickly.
The longer you leave it, the more tricky it becomes. If you have problems, remember to put things in writing and always keep copies of letters.
* If you can't keep up the repayments- Sometimes, the most carefully thought-out plans go wrong. You may find yourself having trouble keeping up your repayments. If this happens, don't just sit back and do nothing. You must let the firm who lent you the money know straight away. Be honest with them and discuss ways of sorting the problem out. They may be willing to come to some arrangement with you. It isn't a good idea to take out another loan to pay off a credit agreement.
Once you start taking out loans to pay off existing loans, things can get out of hand and you could end up deeply in debt. Whatever the type of credit, if you find that you're getting into difficulties, get advice early on.
* If the credit turns out to be extremely expensive- The Consumer Credit Act gives you the right to challenge a credit agreement if you think the interest and other charges are really sky-high, or what the law calls an 'extortionate' credit agreement. But it's not easy to successfully claim that an agreement's extortionate. If the lender is taking a big risk, high charges may be justified. Get advice if you think you're being charged far more than other similar lenders would charge.
* If you want to settle an agreement early- If you decide to settle a credit agreement early, you can do so. You may be entitled to a rebate (a refund) in interest but ask for a settlement figure (a quote of what it will cost you ). Then you can think it over and decide whether it's the best thing for you to do with the money you have available.
If you buy something and then find out that the person 'selling' it only had it on hire purchase. The finance company (the owner) has the right to take it back. You aren't the legal owner. The only exception to the rule would be if you'd bought a car or motorbike and were genuinely unaware that it was already on H.P.
With anything else, the finance company can take the goods back and the only way you can recover the money you've paid is to try and get it back from the person who 'sold' the goods to you.
FINALLY - When you take out a credit or long-term hire agreement. you are making a commitment to repay what will often be a large sum of money.
REMEMBER...