what is credit?
Credit allows people to obtain the use of money that they do not have.
questions :
a. Why use credit?
To provide a loan called interest.
b. What are the advantages of using credit?
Credit can help people acquire assets. Credit can also help people lead happier lives by enabling them to obtain the goods and services they wish to have now while paying for them in the future.
c. What are the disadvantages of using credit?
May incur heavy burdens of debt, which is difficult to recover. Many people are left with less money to buy things they would like to have in the present.
d. What institutions are sources of credit?
Financial institutions (commercial banks, savings and loans, credit unions, and consumer financecompanies) hold money that they, in turn, lend out to others.
e. What is interest?
The amount of confidence the lender has that the amount of the loan, plus interest, will be repaid in the agreed-upon time.
f. Who most often wins in a credit transaction?
Credit Companies often win in a credit transaction, due to their clientscontinuallypay them for their usage.
g. How does risk influence the rate of interest?
Higher-risk loans-- loans where it is uncertain that the borrower can repay--usually result in higher interest rates. Lower-risk loans--loans where it seems evident that the borrower can repay--usually result in lower interest rates.
h. What is an unsecured loan?
Not guaranteed by any type of property, these loans are bigger risks for lenders and, as such,typically have higher interest rates than secured loans, rates are lower than those of credit cards.
i. What is collateral?
Security pledged for the payment of a loan.
2.Shopping for a credit card can save you money. Not all credit cards are alike. Here are some ways in which they differ:
-The annual Fee : Some credit cards charge an annual fee, and some do not. The amount of the annual fee may vary from card to card. Most people who have a strong credit record can find cards that do not charge an annual fee.
-Other fees : Credit cards usually charge stated fees for late or missed payments, going over your credit limit, or making certain transactions such as cash advances.
-The annual percentage rate (APR) : The APR can vary from card to card by several % points. Some credit cards offer a low APR for the first few months and then increase after 3 or 6 months. The APR on cash advances often differs from the APR for purchases.
-The grace period : The amount of time a cardholder has to pay the credit card balance without paying interests.
-The way interest is figured --
*Average daily balance : Interest rate is calculated each day on the average of each day's balance for the billing cycle.
*Adjusted balance : Interest rate is calculated on the opening balance after subtracting the payments made during the month.
*Previous balance : Interest is calculated on the opening balance regardless of payments made during the month.
-The credit limit : this is the max amount of money a cardholder can charge.
