The concept of extending credit and the charging of interest to a borrower is as old as humanity itself. The debate about the issuing of credit has long been worn out. There are those who say that responsible use of credit is a good thing. Others disagree because of the oft troubles that the offer of credit poses to those who lack the ability or responsibility to repay.
Secured or Unsecured. Credit is extended to the borrower in one of two ways: unsecured manner or secured. The unsecured is the most popular (as in credit cards). No money is required to obtain the credit other than the borrowers promise to repay. However, a “secured credit card” exists which is often used by financial institutions to obtain a balance of cash in an account to cover the credit limit. These are not as common.
Whether secured or unsecured, the acceptance of credit requires forethought and planning on the part of the borrower in order to meet monthly expenses and fees that are incurred in the use of the credit line.
Charges and Fees. The lending institution attaches charges to the accounts of the borrowers that rise and fall with the account balance. Also, they may include an annual fee of a fixed amount. While this amount may not seem like much, when multiplied by the number of accounts, it can represent a large return for the creditor and improve their profit and loss.
There are many ways for the financial institution to make money on unsuspecting borrowers. It is imperative then for users of credit to read the fine print on any credit application to determine what the charges are and how they will be figured.
Interest Rates. The interest rates charged are based on market rates. However, variations between institutions should be investigated in order to make sure that one is getting the best rate possible. Creditors are notorious for offering to move balances from one company to theirs in order to obtain the balance owed and get them on their roll as a borrower.
Being a wise user of credit means that the borrower will pay off their balance on or before the due date each month. Also, using credit as a means to “float” between income flows (paychecks, etc) is wise as long as the above principle is not violated.
One can enjoy a successful relationship with a creditor providing that all rules and standards are followed in the use of credit.
Hi, I found your blog on google. Very nice layout and info.
Interesting blog, many people do not know the difference
Good post of different Credit detail info.
Generally I do not post on blogs, but I would like to say that this post really forced me to do so! really nice post.
Post really needs to be appreciated as it is providing good information concerning unsecured and secured credit. There are also many other options to handle unsecured debt.