What is credit?
When a borrower borrows money from a lender for a short period of time to make purchases, it is called credit. Usually, the borrower will be required to pay back the amount along with an additional amount called the Interest
. The rate of interest charged varies from one place to another and depends on a number of factors such as the bank’s resources, your financial history etc. If you have a good financial status history, that is if you have repaid your previous loans on time, it is easy to get a loan with low interest
A credit card is one form of a financial arrangement in which the borrower is given a card that can be used to make purchases. The amount required is taken from the bank. The borrower is then required to pay back the money after a time period along with the Interest. Credit cards are not only useful for purchasing and making reservations, especially online, but can also be used to establish a good financial history whereby you can get more credit in the future for lesser Interest rates.
Another major advantage of cards is their exclusive travel rewards advantages
. Some cards offer special promotions such as paying a small percentage of air ticket charges, hotel rooms etc. Yet others cover insurances, especially medical insurances while overseas. Thus using a credit card and using it wisely is one of the best ways to utilize loans.
Most loans have an upper limit beyond which you cannot borrow. The upper limit is determined by various factors such as the income you are currently getting, the security you offer, your current financial situation, your history of financial transactions etc. Generally it is not possible to make a purchase above the limit. Such purchases are usually rejected. However, some credit companies allow you to make such purchases while at the same time charge a fee for exceeding limits.
However there are a few ways to safeguard you from unexpected situations such as sudden loss of job, divorce
settlements, accidents, sudden death etc. The payment protector is one such option that some financial companies offer and information on this can be obtained from the customer service department of the carious companies.
One option while looking for loans is to use a credit union
rather than a bank. These unions are similar to banks except that they are run by people rather than corporations. Since they exist to serve people rather than make profits, you could get better financial plans from them. Their principles and policies vary from each other and you can always find the one that suits you best. They offer various innovative plans that could help you save a lot of money.
Also while getting loan, be sure to find out if it has financial insurance. This insurance is used to protect the borrower from losses in the credit company such as insolvency, sudden changes in the political climate etc. Although loans can be a messy affair and could get you into a lot of trouble, choosing them wisely and ensuring you are secured against losses could help you in minimizing risks and save you a lot of money.