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Guest article from the Financial Ombudsman Service.
When it comes to personal finance, there are many myths that can fool even the savviest saver, and we have come across many of them here at the Financial Ombudsman Service.
Confusion reigns due to a number of reasons – jargon, policy terms and conditions like a financial version of ‘War and Peace’ – and good old-fashioned wishful thinking or second-hand rumours.
However, some financial myths can get you into trouble – like having an impact on your credit history – and in the digital age, once they get started, they can be hard to stop .
Well, worry no more, as we debunk the most common myths that have come across our desks.
More often than not you are not covered for a missed/delayed departure or cancellation of return flights. If you are forced to remain at your destination, for whatever reason, people often assume their insurance will cover food but it almost always doesn’t – additional accommodation only.
Valuables stolen from locked vehicles are very rarely covered. This causes no end of confusion, especially in today’s world of Ipads, Beats headphones and camera equipment! But bear in mind that you might be more likely to get robbed if you leave valuables visible in your car.
Contrary to opinion, there is no’ black-list’ that exists which would prevent you from getting credit. Instead, your bank uses the information on your credit report and will take this into account when deciding whether to give you an account, a loan etc.
Another myth that we’ve heard is where people believe their property is ‘black-listed’ if someone else living there or a previous resident has a bad credit history and that this will have an adverse effect on their ability to obtain credit. Not true – though if you get letters for the previous occupant, a credit reference agency can help you ‘disassociate’ yourself from them.
Good news – this is not usually the case! Even if you are entitled to sick pay from your employer, in most cases PPI will pay out in addition to any employer’s sick pay.
It’s for each potential lender to decide what makes a good credit score – and existing credit applications could be interpreted differently. For example, some may think that people who take on payday loans cannot manage their finances correctly if they need short-term, high-cost borrowing to tide him/her over.
This is another myth. People can access their pensions once they reach age 55 without stopping work. This allows consumers greater flexibility. However, they will not be able to access their state pension, until they reach the ever-increasing state pension age.
The ombudsman sees a significant number of complaints from consumers about the advice they received from advisers who told them they are authorised by the Financial Conduct Authority. Consumers can check if the business or person giving advice is authorised by looking on the FCA’s easy- to- use register. If a business is not authorised, the ombudsman can’t help.
We hear this quite often. People take this to mean that they are covered for anything but what it really means is that there is no limit to the sum insured.
People often believe that they cannot prove ownership of valuables if they don’t have receipts, however this is not the case. Insurers should accept photographs too but they have to be good enough quality to show the item in question.
With interest-only mortgages, people need to have a repayment plan in place. Many assume that the equity in the property will cover the mortgage, however that is not always the case. People should not assume that they will have enough equity in their property to repay their interest-only mortgage.
Remember that Facebook update that you’re supposed to cut and paste to your page so Mark Zuckerberg can’t use your data? That wasn’t true and neither are most of the online tips that tell you how to get out of paying your debts. If someone tells you there’s a law, a new way of paying (not paying) or any other way out of your financial commitments, question it. If it was true, wouldn’t everyone be doing it?
Sadly, this isn’t true. In one case we’ve seen, a customer stopped making repayments to his loan as his lender went bust. However, a while later – after a few house moves – a collections firm traced him and asked for all his arrears back, plus interest.
So, our advice is to put the money to one side and contact the administrator or the customer helpline, which will probably redirect you to someone who can help, to find out how you should repay your debt.
Are any of these surprising to you? Maybe you know of other financial myths? Let us know in the comments section below.
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