Insurance is where you pay to insure against something happening to yourself or your property. If the worst happens, the insurance company pays out either the full cost of repairing or replacing the damaged goods, or an agreed sum.
Loan sharks will often start out being friendly – their behaviour only changes when repayments are missed. They offer little or no paperwork, increase the debt or add additional amounts, refuse to give the borrower vital information, such as the interest rate or how much they still owe, take items as security – for example, passports, bank cards or driving licence,s and often resort to intimidation, threats or violence.
Preventative measures to avoid going overdrawn include agreeing a new overdraft limit with your bank, using a Basic Bank Account (which does not allow overdrawing) or budgeting (so you can account for all your income and outgoings).
In order to open a bank account you’ll usually be asked to: prove who you are and where you live (using official documents), prove student status if relevant, fill in an application form, and in some cases pay some money into your account.
Loan sharks sometimes frighten people by saying they’ll be prosecuted and even sent to prison if they don’t pay up. This can’t happen – an unlicensed lender has no legal right to recover the debt.
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Some bank accounts let you get more out than you have in (overdraw) by a small amount (for example, £25) without charging. But if you go overdrawn without agreement you’ll normally be charged interest on the amount – and a fee on top. In addition, the bank may refuse to pay your cheques or direct debits and will probably charge you for ‘bouncing’ (refusing) them. The fees can be very high, and you may have to pay an administration fee on top.
Loan sharks are unlicensed moneylenders who charge very high interest rates and sometimes use threats and violence to frighten people who can’t pay back their loan.
When opening a bank account you need to prove your identity in order to help banks in the fight against “money laundering”. This is where criminals try to open accounts – often in false names or using stolen identities – with money made from or intended for illegal activities. By law banks must check to make sure they know their customer before letting you open an account or buy their financial products or services.
An ‘overdraft’ is the amount of money you have agreed with your bank that you can take out when your balance is at £0. For example, if you have an overdraft limit of £100, this means you can take out up to £100 when you have no money in the account.