What is credit

Attached to your current account, an overdraft can act as a temporary safety net if you’re running low on funds or have cash flow issues. Although it can be useful for unexpected expenses, you shouldn’t rely on your overdraft as part of your account balance.

Interest rates tend to be higher than with credit cards, so pay off as much as you can as soon as you can to reduce how much you pay in interest.

The benefits of overdrafts include:

✔️ Providing a useful safety net.
✔️ They are always available (up to an approved limit).

But you should be aware, overdrafts:

❌ Are not for regular or long-term borrowing.
❌ Have a high interest rate (when used).

Examples: Utility bill, cash flow management

A credit card is a convenient and flexible form of credit. It’s mostly used for everyday items, from buying business supplies and groceries to petrol or plane tickets.

Your credit card provider will set a limit on how much you can spend. Before you apply, be sure to carefully check the Summary Box, as interest rates can vary a lot between cards and some come with annual fees.

The benefits of credit cards include:

✔️ Manageable & flexible repayments.
✔️ No interest on purchases if paid off in full by the payment due date each month.
✔️ Often has a rewards programme or incentives like cashback.

But you should be aware, credit cards:

❌ Are not for long term borrowing.
❌ Can take a longer time to repay if you only make minimum payments.

Examples: online shopping, groceries, flights or holidays

A bit like a mortgage, a personal loan is when you borrow a set amount of money and pay it back in fixed instalments over an agreed amount of time, typically with interest. The big difference is that loans can be unsecured as well as secured. Personal loans are unsecured, which means the lender doesn't use your home as security against the loan. But you still need to make your repayments on time to avoid being charged penalty fees and a negative mark on your credit file. 

Loans can vary a lot from lender to lender, so check the interest rates, fees and repayment terms very closely before taking one.

The benefits of personal and business loans include:

✔️ Unsecured loans available.
✔️ Fixed monthly payments.
✔️ Lower interest rates for borrowing over longer periods.

But you should be aware, personal and business loans: 

❌ Can have unfavourable terms applied by some lenders.
❌ Are not suitable for smaller loans or short term borrowing.

Examples: Buying a car, House renovation

A mortgage is defined as secured credit. Secured loans are where you borrow a large amount of money from a lender to buy a property, and the lender uses that property as security in case you can’t repay the loan. So, the lender can take your home if you don’t make the required repayments. The size of mortgage you can borrow will depend on your credit score alongside other factors.

The interest rate is usually lower than with short term credit and you make repayments in regular instalments, usually monthly, over a long period of time. There are several types of mortgages available with fixed or variable interest rates and different ways to repay.

The benefits of mortgages include:

✔️ Access to large sums for major purchases.
✔️ Lower interest rates than short term credit.

But you should be aware, mortgages:

❌ Are secured against the value of the property.
❌ Are a long term repayment commitment.

Examples: A house / flat, business premises

Newcomers to the credit scene are Buy Now, Pay Later financing companies. You’ve likely seen them pop up at the payment stage for online purchases.

You can use them to buy the items in your shopping cart now and pay in fixed instalments over a set amount of time. There’s typically no interest attached, but if you miss a repayment you’ll be charged a fee.

The benefits of 'Buy Now, Pay Later' include:

✔️ Breaking down costs into manageable chunks.
✔️ No interest if repayments made on time.

But you should be aware, 'Buy Now, Pay Later': 

❌ Can be easy to overuse.
❌ Late payment fees can be significant.

Examples: Pair of shoes, office chair

Want to know more about different types of credit? MoneyHelper has answers.

An interest rate tells you how high the cost of borrowing is or how high the rewards are for saving.

If you’re borrowing money (like using credit), the interest rate is the amount you’re being charged, shown as a percentage of the total amount you borrowed. If you’re saving money, it tells you how much you’ll be paid as a percentage of your total savings.

For example: if you borrow £100 and the annual interest rate is 30%, after one year you would owe £130 (unless you’ve paid anything off).

Credit cards can have different interest rates depending on what you use them for, with standard purchases usually being cheaper than if you use your card for withdrawing cash.

If the interest rate has ‘(variable)’ after it, the rate can change over time depending on different influences such as changes in the economy.

APR stands for Annual Percentage Rate.

It describes the annual rate of interest as well as any fixed fees you might need to pay as a borrower. Interest + Fees = APR. The higher the APR, the more expensive the loan or credit card will be.

You’ll find your APR on your Pre-Contract Credit Information and Credit Agreement.

There are two types of APR:

1. Representative APR - All banks and lenders use Representative APR. When you see this term, it means that interest rate has been given to at least 51% of customers who apply successfully. It’s a useful comparison tool.
2. Personal APR - This is the actual interest rate you are offered. This could be the same as, higher or lower than the Representative APR depending on your personal circumstances.

APR and EAR are both acronyms used to describe how much it costs to borrow money, but they’re calculated in different ways.

• APR stands for Annual Percentage Rate. It’s the advertised interest rate that banks and lenders use to help customers compare the cost to other types of borrowing.
• EAR stands for Equivalent Annual Rate. It’s the interest rate you would actually pay over the course of a year factoring in compound interest (which is interest on the interest).

EAR doesn’t include separate fees and charges you might have to pay, but APR does.

A Representative Example is designed to show the typical cost of borrowing money in a standardised format. You’ll see them wherever you see adverts for credit products like credit cards, overdrafts, loans and mortgages.

Overdraft Representative Example
We include this in our overdraft offers, and on our website, to show what the ‘Total payable’ cost for the overdraft might be over the course of a three-month period.

Credit card Representative Example
You’ll see this in all our credit card offers, and on our website, to show you what the ‘Total payable’ cost of your credit card could look like.

A summary box provides the key credit card information such as the Annual Percentage Rate (APR), interest rates, the length of any interest-free period, the minimum repayment calculation and any other fees that might be charged.

Compound interest is the earning or charging of interest on interest and can be applied for both savings and lending. For savings accounts, compound interest means you earn interest from previously earned interest. This makes your savings grow exponentially.

For some forms of lending such as credit cards, compound interest applies when you don’t pay your balance off in full each month. If you have an outstanding balance, you’ll have to pay interest on both the initial amount you borrowed, plus interest already charged that you’re still paying off. 

Most credit cards offer an interest free period on the purchases you make. This is the maximum number of days between you buying something with your credit card and you repaying that amount, before you get charged interest on it.

We’ll give you an example using the interest free period for a Zempler Bank credit card.

If you pay your credit card balance in full and on time each month, we’ll give you up to 56 days interest free credit on any purchases you make. This means you don’t have to pay interest on anything you buy until up to 25 days after the end of that month’s statement period.

Up to 31 days in a month + 25 days extra = up to 56 days interest free.

If you only make the minimum or a partial payment on your credit card, you’ll lose your interest free period and will have to pay interest on your unpaid purchase(s) from the date of the purchase until you repay it in full.

Personal account credit add-ons
We offer eligible customers an easy to use overdraft add-on that can help build your credit score.

Business account credit add-ons
Cash flow can be an issue for any business. We offer a range of business credit add-ons like overdraft and credit cards to help prepare your business for the unexpected.

Our personal and business credit products are designed to offer financial support when you need it. All Zempler Bank credit products are subject to eligibility as part of our responsible lender commitment.