Other Types of Borrowing

There is a huge range of loans and credit available, many of which are aggressively promoted. Don't be dazzled by the first deal that's thrust upon you. If you shop around, you'll find some deals are much better than others, and some should be avoided altogether.

Overdrafts

Where from? Banks, some building societies.

How they work You run a deficit on your current account by spending more than you've got - in other words, you go into the red. It can be a convenient way of borrowing. But it can be expensive: if you don't arrange the overdraft in advance you'll often be charged a penal rate of interest, and even if you do arrange it, you may have to pay bank transaction charges or a standing charge ). Building societies and a few banks let you have a limited overdraft and charge you interest only - this is a relatively cheap way of borrowing.

Points to note Some of the accounts offered by building societies and banks have built-in overdrafts - up to £400, say - so you don't need to arrange in advance to go overdrawn. If your account doesn't have a built-in overdraft, bear in mind that you could be asked at any time to pay off what you owe. Usually no security is needed for an overdraft.

Verdict Convenient form of short-term borrowing - useful for, say, buying electrical goods, paying for holidays or covering household bills. Building society and some bank overdrafts are relatively cheap, but other bank overdrafts can be expensive once you take charges into account.


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Variations On The Home Income Plan Theme

Variable interest plans These work like the plans already described, except that the rate of interest on the mortgage rises and falls with the general level of interest rates. The income (before interest has been deducted) from the annuity is fixed, so a rise in the interest rate reduces the amount of income you're left with. Most people should avoid these plans.

Plans linked to other investments Some home income plans don't use some or all of the mortgage loan to buy an annuity. Instead, some or all of the money is invested in single-premium insurance bonds ). You can't be sure how much money... see: Variations On The Home Income Plan Theme


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