Credit sales

A credit sale is when you buy an item and agree to pay for it in regular instalments over an agreed period.

You legally own the item from the moment you sign the contract, even if you still have payments due.

Repayments are usually made monthly, but not always, so check your agreement to see the exact schedule.

It’s also worth remembering that you won’t get a discount for paying in instalments.

So when you buy the item, you’re agreeing to pay the full cash price.

You also need to make sure you’re aware of the interest being charged.

Some may be interest-free if they’re part of a deal, but most credit sale agreements will charge interest.

Since you own the item as soon as you buy it, you probably won’t be able to return it if you change your mind, unless the retailer’s return policy says you can.

It also means the supplier can’t take the item back if you miss a payment.

But if you fall behind on repayments, arrears start to build up and no payment agreement is reached, the supplier can take you to court to recover the money you owe, which could result in a County Court Judgment (CCJ) being registered against you if the debt isn’t paid.

Interest-free credit means you won’t be charged any interest as long as you pay on time each month.

So if you’re confident you can keep up with the repayments, this can often be a good deal.

But the price of the item might be inflated to offset the interest-free offer, so the difference could be minimal.

And if you miss a payment or pay late, the lender may start charging interest, possibly at a much higher rate than a standard agreement.

So always read your credit sale agreement carefully so you understand important details, like how much you’d have to pay in interest, how long the repayment period is and what fees or penalties you’ll be charged if you fall behind.

If you fall into arrears on your credit sale, the creditor can take action to recover the debt, such as:

• adding late fees or extra interest to your account
• reporting missed payments to credit reference agencies
• starting court action if the arrears aren’t cleared

So if you’re struggling to keep up with payments, you should contact the lender as soon as possible and explain your situation.

They may agree to a temporary reduced payment or a repayment plan.

You should also speak to a debt adviser, as they’ll talk you through different ways of getting on top of your debt, such as helping you budget or recommending a debt solution.

Your creditor might report you to credit reference agencies if you start missing payments, which could affect your credit score.

That can, in turn, make it harder for you to borrow money or get credit in the future.