Personal Credit and Financing


Credit
 

Credit is using tomorrow’s money to pay for something you get today. Because our society is becoming more and more credit-based, it is important that you understand how to use credit properly so that you will always have access to the most affordable terms of financing for all of the things that you may need to pay for over time. business.



Are You Sure You Want To Borrow Money On Credit?
 
• Do you really need credit?

• If so, what kind of credit do you need?

• Who will you get credit from?

• Will you be able to pay for it?

• How much is too much?

• Will buying an item on credit make you happy if you don’t need it and can’t afford it?
 

Credit is a promise to repay a debt for goods or services after you have received them. With credit, you receive the goods or services now but pay for them later.


KINDS OF CREDIT
 

Long Term Credit

Mortgages, car loans, and other installment loans which are repaid over months or years are generally considered long-term debts. How much the loan will cost you over the long-term is based on the terms of the loan.
 

Short Term Credit

One type of short-term credit (called single-payment credit) is used to purchase items or services that are to be paid for in a single payment within a given period of time, usually with no interest charge. If the full balance isn’t paid within the given time period, you are charged a fee or interest on the balance. Utility bills are examples of this kind of credit.
 

Other short-term credit is usually paid for in installments of equal payments that include the original amount you borrowed plus interest. Short-term credit may have terms ranging from six months to five years.



Secured Credit

Secured debt requires something of value to be pledged to the lender if the debt is not repaid (this is called collateral). Home mortgages and car loans are examples of secured debt. They are also examples of what is known as closed–end credit, which calls for a payment of a fixed amount for a predetermined period of time. The interest rate may be “fixed” or “variable.”


Unsecured Credit

Unsecured debt is based solely on the trustworthiness of the borrower. If nothing of value is pledged as collateral for the debt, the lender depends on the borrower to repay. The lender’s risk is greater if an unsecured loan is not repaid because no collateral was pledged for the loan. Therefore, these debts carry a higher interest rate.


Most credit card debts are unsecured. Credit card debt is a type of “open-end” credit and the cost of the credit may vary depending on the Annual Percentage Rate (APR) and other finance charges.

With a revolving account such as a credit card account, additional credit is extended to pay for the cost of items and services until the borrower’s limit or maximum dollar amount has been reached. A minimum payment is required each month to be paid on the balance owing. The difference between your credit limit and the actual amount you owe is your “available credit.”



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