What Is Compound Interest? – An Intelligent Way Of Saving

It was revealed recently that you can become a millionaire by the time you retire just by saving £18 a week from the age of 22. And actually, it’s entirely true. Compound interest is being branded as ‘the intelligent way of saving’ and is making it’s prominence into the financial world as time goes on. But what is compound interest, and more importantly – how can you make use of it?

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Hire Purchase vs. PCP

What Is Hire Purchase?

Hire Purchase (HP) is a method of finance when buying a car. Typically, if you’re using Hire Purchase for either a new or used car you would need to pay an upfront deposit, and then pay off the value of the car in monthly instalments. This means you would not own the car until the full payment is made. Most of the time, you’ll be required to put down a deposit of around 10% of the vehicle’s value. Then, the rest of the car price will be paid off in instalments that can last for anything from less than 1 to over 5 years.

Hire Purchase can be arranged by car dealerships or brokers and the rates will vary depending on your credit score, along with the type of car you’re looking at. Rates tend to be competitive for new cars, but not so much for those that are second hand.

Once you’ve paid off all instalments of the Hire Purchase loan, you’ll typically be asked to pay an ‘Option To Purchase’ fee, once this – along with the rest of the payments – have been made, you’ll legally own the car.

What Is PCP Finance?

Personal Contract Purchase (PCP finance) is another loan-type method of acquiring a car. Unlike a normal loan, (and unlike Hire Purchase) you’ll typically never pay off the full value and won’t ever own the car.

Similarly to Hire Purchase, you’ll be required to pay a deposit of around 10% when you opt to ‘loan’ a car through PCP. You’ll then pay instalments of a loan which is assessed on how much the car is likely to be valued over the term of the deal, which can be anything from 24 months to 36 months. The payments you make will chip away at this loan and will carry added interest.

Most of those who use PCP opt to upgrade to another model of car once their lease is up, but if you’re wanting to keep the car you’ll usually be able to purchase it under what’s called a Guaranteed Minimum Future Value (GMFV) – which is basically how much the dealer expects the car to be worth once your finance lease has ended. Alternatively, providing there’s no damage, you can hand the car back and walk away at the end of your contract – or open a new PCP agreement for a different car with your dealer.

Hire Purchase Advantages And Disadvantages

As with any methods of finance, Hire Purchase agreements have their pros and their cons. The advantages and disadvantages of this method of leasing and buying a car are below.

Advantages Disadvantages
  • You’ll typically own the vehicle (given you pay the Option To Purchase fee) once you’ve paid off the agreement.
  • Hire Purchase gives you the option to spread the cost of a car over a time period, which is good if you cannot afford a high lump sum.
  • The interest rates are typically fixed for the entire length of the agreement.
  • You’re usually tied in to Hire Purchase, which means if you find yourself in a position that means you cannot keep up with payments – you may find yourself losing the asset and damaging your credit rating.
  • Because of interest, it’s likely you’ll end up paying more than it would cost to buy the vehicle upfront.
  • If your Hire Purchase car is damaged or stolen before it’s fully paid for, your insurance may not cover it.

 

PCP Advantages And Disadvantages

So what about the advantages and disadvantages of PCP? You can find them below.

Advantages Disadvantages
  • PCP is a great option if you don’t want to commit to one car model, as it gives you the option to change.
  • There is less financial risk with a PCP lease as you’re never paying the full cost of the car.
  • Unlike a car loan, PCP only requires you to pay a relatively small deposit (10% compared to 40% to 60%)
  • Unless you pay for the rest of the car at the end of the PCP agreement, it will never truly be yours.
  • You have to keep the car in great shape and you can be liable for any issues, even really small ones, when it comes to return the car.
  • You are entitled to stay within the annual mileage chosen upfront and you’ll be charged for any miles that you go over.

So What’s The Difference Between Hire Purchase And PCP?

The main difference between Hire Purchase and PCP is that with Hire Purchase, you finance the total cost of the car (minus deposit or part-exchange allowance). With PCP, you finance the depreciation. PCP and Hire Purchase work in the same way on paper, but what is financed through the scheme varies.

With PCP, you can either pay off the remaining value (a balloon payment), hand the car back or enter a new PCP agreement once your lease has ended. With Hire Purchase, at the end of your agreement – you’d have paid off the full value of the car and will own it (after a one-off ‘Option To Purchase’ fee is paid).

At first glance, PCP certainly seems like the cheaper option – as your instalment payments will be much less than Hire Purchase. However, in the long run, Hire Purchase works out cheaper as you’re paying for the whole asset – and won’t have a big lump sum outstanding at the end of the agreement should you wish to keep the vehicle.

Is There A Time Limit On Section 75 Refunds?

What Is A Section 75 Refund?

A Section 75 refund is applicable to those who may find themselves in a situation where they’ve used their credit card and paid for an item that was faulty, or used it for a service transaction, only for the company to go into administration before they’ve received their product.

Even if the product or service provider has refused a refund, under the Consumer Credit Act 1974 – you’re entitled to one from your credit card company. They consider the organisation equally as liable if you suffer a breach in contract.

Is There A Time Limit On Section 75 Refunds?

While there is no time limit for making a claim under Section 75, the statute of limitations in the UK is six years (and is five in Scotland). Meaning if you were to pursue a Section 75 refund through the courts, this is the amount of time you would have to do so.

What Protection Does A Section 75 Refund Give You?

Section 75 refunds apply to products or services that are valued between £100 and £30,000 of which part of the purchase has been made with a credit card – this includes deposits. According to the Consumer Credit Act 1974 – any purchases that aren’t confined within this remit cannot be considered for a Section 75 refund.

For example, if you make a purchase of a TV and you pay a £50 deposit on your credit card, you would be protected under the act. If you purchased, say, a microwave for £90 and paid a £30 deposit – you wouldn’t be eligible as the full item value doesn’t fall between £100 and £30,000.

These rules only apply to single transactions. So, if you were to buy two items for £90 each at the same time, they would not be eligible for a Section 75 refund – despite the total transaction price being over £100. The only exception to this would be if the product was bought as a bundle, or a 2-for-1 deal.

You will also not be covered if additional fees, such as delivery and process charges, took the cost over £100. For example, if you purchase a concert ticket for £95, but website fees and delivery of the ticket made the total cost £115, you would still not be applicable for a Section 75 refund as the original price of the item was below the £100 threshold.

Do Section 75 Refunds Include Debit Cards And Other Payments?

Unfortunately, under the Consumer Credit Act 1974, Section 75 refunds only apply to purchases made on a credit card.

On What Grounds Can I Make A Section 75 Claim?

There are two grounds on which you can apply for a Section 75 refund, and those are…

  • Breach of contract – meaning you did not get what you paid for. Such as an item not being delivered, or a service provider going bust.
  • Misrepresentation – meaning you were given the wrong information, which persuaded you to buy a product. E.g. paying for a mobile phone accessory – only to find out it isn’t compatible with your smartphone as described.

How Do I Make A Section 75 Claim?

You should initially try and resolve the issue with your service or product provider, they should be your first point of contact. However, if your matter is not resolved by the organisation directly, then it can be raised with your credit card provider.

You should contact your provider only when you have been refused a refund, or ignored. And in this instance, you should provide the following information:

  • What was purchased
  • Where it was purchased
  • How much you paid
  • How you brought the item or service
  • A copy of the receipt(s)
  • Details of how you believe your contract has been breached
  • Examples of you trying to make contact with the provider
  • An explanation of what you’re seeing from your credit card company

If you are rejected for a Section 75 refund, yet you believe you are still eligible – you can escalate the case by making a complaint to the Financial Ombudsman Service.

For more money saving tips and advice, head to our site.

What Are The Best Bank Accounts For Travelling In Asia?

If you’re travelling abroad, and especially outside of Europe to the likes of Asia, it can be confusing to know which bank accounts to make use of. With the risk of steep card charges and accounts being blocked while travelling – it’s crucial you do the right kind of research before you set off to avoid any tricky financial blocks further down the line. Because let’s face it, travelling is a once in a lifetime experience that could easily take a turn for the worst should something such as your finances fall out of order.

Asia, which includes amazingly stunning places like Thailand, Vietnam, Indonesia, Malaysia and Cambodia, is a true backpacker hotspot. Tens of thousands of tourists head South East every year to explore the continent’s beautiful offerings. But, with some heading out for months at a time, it’s fundamental that they have sound finances before making the trip. Good money management is crucial.

Why Do You Need To Review Your Bank Account Before Travelling?

It’s a good idea to have a dedicated bank account for when you head out travelling. It’s far more secure than carrying cash, and means you can track your finances in real time and manage your spending. But why can’t you just head out with your standard bank account and use it as normal while abroad, and especially in Asia?

Well, for one – you can incur pretty steep charges if you opt to use your debit or credit card abroad. Even more so when travelling outside of Europe. This includes both withdrawal and transaction fees, so you can rack up an extra cost when taking out currency or just paying for something on your card. If you’re heading overseas for a longer period whilst travelling, this is something you’ll want to avoid.

Do You Still Need To Tell Your Bank You’re Travelling Abroad?

Another historic rule of thumb when travelling abroad was that you’d need to inform your bank or building society on your plans to head out of the country. Apparently, you no longer have to inform your bank when you’re abroad, whether that be on a short holiday or travelling for a longer period. However, many have reported stories of having cards blocked while in another country, which has left them without access to their finances and incurring steep call fees when trying to get the issue sorted too. So in short, it’s well worth setting up a dedicated bank account for travelling, especially in Asia, before you jet off.

Things To Mind When Opening A Travel Bank Account

When choosing a dedicated travelling bank account, you should take into consideration…

  • Whether the provider requires a minimum balance
  • Any monthly or annual service fees
  • It’s exchange rates
  • Any overseas card transaction fees
  • Ease of sending and receiving money through international bank transfers
  • Monthly or annual service fees, the minimum balance required on opening, the exchange rate offered, mobile banking apps and transfer fees. You should also pick an account that makes sending and receiving international payments a breeze.

What Are The Best Banks For Travelling To Asia?

To avoid bank charges abroad, and to circumvent any frustrating card blocks before travelling to Asia, it’s a good idea to research some banks that are good for backpackers. Luckily for you, we’ve omitted the hard work, and have listed our suggestions below for the best banks for travelling to Asia in 2019.

Starling Bank

Credited as one of the biggest challenger banks, Starling is a prime choice bank account for backpackers. They don’t charge you to use your debit card, and like other providers, they maintain you don’t have to contact them before leaving the country. Unlike other banks and building societies though, if you do incur a problem during your travels – you can contact them directly through the app.

TransferWise

TransferWise offers a ‘borderless account’ which allows you to operate in over 40 currencies in your account in the mid-market rate. It’s free to pay for goods overseas with the currencies you hold in your account, and you can also withdraw up to £200 a month fee free. Unlike most banks that’ll charge you a going rate for transactions and withdrawals overseas (and especially in Asia) – TransferWise won’t, and is, therefore, a sound choice for backpackers and travellers.

HSBC

If you’re looking for an abundance of cashpoints while travelling in Asia – then HSBC is the bank for you. In fact, HSBC was the first commercial bank in Thailand, which was established as far back as 1888. They charge a transaction fee, though, unlike Starling and TransferWise so it’s worth noting that to make use of the wealth of places to withdraw money, you’ll also incur a small fee.

Monzo

Another digital bank with an appeal to those travelling to Asia is Monzo. They offer free cash withdrawals up to the value of £200 a month. After that, it’s a 3% charge. Monzo bank accounts are quick and simple to open and are easy to maintain too – as you can do all of your banking through your mobile whilst on the go.

For more on travel and finance, head here.

Challenger Bank Accounts: What Are They, And Are They Worth Having?

For as long as there have been banks, there have been established names in the industry of which everybody uses one or the other of. Halifax, Lloyds, Natwest and Santander are just a few of these big corporations, which when asked ‘which bank or building society are you with?’, will likely be your answer. But, as the term ‘challenger bank account’ has become more prevalent over the past few years – it’s time to question the possible benefits of these digital banking competitors, and whether you should be using them instead?

The rise of challenger bank accounts

The idea of app-based banking isn’t necessarily new, though. Just a few years ago, the big player in the online-only banking industry was PayPal. But now, names such as Starling and Monzo are hot on the tails of this corporate giant and are winning more and more customers from both PayPal itself, and the other ‘big four’ than perhaps initially expected.

So, is what we’re seeing basically just a glorified PayPal?

Well, no. The big difference between the two is that, although having many innovative features, PayPal is primarily a money transfer software tool only. Most business operations include the sending and requesting of money digitally, and individuals; between family and friends. Though you can pay for more and more with PayPal (including offline transactions), it doesn’t classify as a ‘bank’ as it does not possess all the features needed to be categorised as one.

Challenger banks do. And (the clue’s in the name) they’re getting well up to speed with the UK’s most well-known businesses and hold the potential to even overrule them in the market.

But what is a challenger bank account?

Technically, the term challenger bank is used to describe any bank that’s looking to challenge the big four in Britain: Barclays, Lloyds Banking Group (which includes Halifax, Lloyds Bank and Bank of Scotland), HSBC and RBS (which includes NatWest and Ulster Bank).

Established players, such as TSB, Virgin Money and Metro Bank, do actually fall into this bracket, but are not necessarily seen or known as ‘challenger banks’ as they’re pretty widely recognised already. The colloquial term has only recently come into play, and is largely used to describe banks that operate solely online – the two biggest names are ‘Starling’ and ‘Monzo’.

These two UK challenger banks, amongst other names in their industry, focus on modern design, personalisation, low fees and convenient customer service to tempt people in. Tried and tested in real life by our team, to apply for a bank account with Starling, all you need to do is send over some details, a snapshot of ID and a very short video confirming that it is in fact you applying – and you’re done. No back and forth trips to the bank with lengthy meetings to get started.

With e-banking and mobile banking at the forefront of their business, UK challenger banks like these operate solely online (even at the sign-up stage), setting them apart from their traditional competitors.

They also feature real-time payment notifications, meaning you receive an alert every time there is any activity on your account. This, as credited by users of the challenger banks, makes it easier to keep track of your spending, but also helps you to instantly spot any anomalies – meaning preventing fraudulent activity is far easier.

Is it worth opening a challenger bank?

There are many reasons that more and more are choosing to open a bank with one of these nifty alternatives as opposed to the big players, mainly because of how easy they are to use. With real-time control over your spending, impressive user experience and there-when-you-need-it customer service, these challenger banks play on the frustrations that customers have with the ‘top 4’ and use them to their advantage.

But, as with anything, there are always drawbacks to bog down the positives. And challenger banks, though largely popular now more than ever, are not free from ‘cons’ either. To help you decide whether they’d be right for you, we’ve put together a quick table of advantages and disadvantages to help steer your decision.

Challenger Bank Account - MoneyBright

As with anything, there are certain ‘pros’ and ‘cons’ to challenger banks, so your decision depends on what you want out of a bank. If you’re open to new ideas and like the thought of managing your finances online, then the likes of Monzo or Starling will certainly offer you an abundance of helpful features in exchange for you opening an account with them. But on the flip side, if you prefer the security of a traditional and reputable bank, then you may be better off keeping your money where it is.

Do you have an account with a challenger bank, or are you considering opening one? We’d love to hear your thoughts. Tweet us at @moneybright, or with the hashtag #MoneyBrightAdvice and let us know today.

Our Top Money Saving Apps

Thanks to the rise of smartphones, there is a plethora of moneysaving apps available to download. Each app promises a new way of handling money, saving and reducing the amount of superfluous spending on things like clothing and takeaway coffees.

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Money Saving Tips from the Richest People in the World

Ever wondered how the richest people got to where they are? Of course it helps to be incredibly good at something, whether that’s playing music, making people laugh or creating an important piece of tech. But a lot of their long term wealth has to do with their attitude to money. In this post, we reveal how some of the richest people in the world view money in a completely different way to a lot of us…Continue Reading…