You might be forgiven to assume that money is money and unless you’re part of the EU, then there is only one type of money and in the UK, the units are Pounds Sterling.
I believed this was the case for many years and it wasn’t until I tried to complete a transaction in a way that would close in my favour. In fact I recently came across this same issue recently and I will use both instances to elaborate on the fundamental difference between cash-money and credit-money.
After almost four years of paying 500 per month towards my car loan, I decided the timing of a balance transfer offer on my credit card was a good way to borrow an equal amount to what was outstanding, about 1500 and pay off the loan, that way I could officially take ownership of the car and sell it to finance my next car.
I took the balance transfer offer and poised with my credit card to settle the debt and it all became clear. This was not possible. The only way to pay the debt was with hot-cash. That is, either by bank payment of debit card – in other words by cash only. This resulted in having to suffer the last three months of the loan since I didn’t actually have hot-money of cash to clear it in one go.
I’m sure I had come across other types of transactions where a credit card could not be used. For example, in another motoring transaction, the sales person did say only up to 500 could be paid by credit card, the rest must be by debit card or bank payment.
When you think about it, it makes sense to take advantage of balance transfers, which reduce annual interest rates on borrowing to around 3.5%, at typical initial transfer fee rates.
This shows that there are built in measures to prevent account holders from using credit to suit the consumer. Instead a line of credit is available as long as we abide by rules on how we can spend it.
So, despite what looks like an opportunity to a line of credit at 3.5%, so that you can make a lump sum payment for something you want and that is totally legitimate, you are unable to.
If on the other hand I were to visit an Apple shop and kit myself and the rest of my family out with consumer goods such as smart phones, tablets, laptops etc., to the tune of the price of a car, that wouldn’t be a problem.
The moral of the story is therefore to be very careful how you pay for things. Don’t assume you have infinite credit and can buy what ever you like, just because your card company has increased your limit to 15k.
I hope to extend this journal about finance as many of us don’t understand how loans can effect our credit in a way that if you buy things on credit in the wrong order, or at the wrong time, you could make your credit seem worthless and find yourself in need of having to clear yourexisting loans before being eligible for more.