What is a credit card?
The credit card is a payment card issued by the financial company to the user that enables to pay a merchant for purchasing good and services. The cardholder agrees upon the conditions kept by the issuer and promise to pay back the original, borrowed amount with additional charges. The financial company can grant a line of credit to the cardholder that allows the user to borrow money in the form of cash advance and the user-borrowing limit is decided on the based on user’s individual credit score.
Advantages and disadvantages of credit card:
- Easy access to credit: It is easy to access and the card functions on deferred payment. The user can use the card now and pay for the purchase later.
- Building a line of credit: The credit card offer a chance to build a line of credit, which is important for the user to get a good credit score. The credit score is helpful for a user to get the loan or for applying for credit card.
- EMI facility: If the user doesn’t want to pay a large amount for the purchase through the credit card and sink the savings on it. Then the user can use the EMI option to make the purchase. Making payment through EMI is cheaper than taking the personal loan.
- Flexible credit: The outstanding credit is not charged until a particular period of time. The user can avail the free or short-term credit if the cardholder pays off the entire balance due of credit card bill before the payment date.
- Record of expenses: The credit card records all the purchases made through it and a detailed list of purchases on the credit card is sent to the user. A user will receive an alert every time when the card is swiped it includes details of credit amount available.
- Purchase protection: The finance company provides additional protection to the card in the form of insurance for purchasing the card if lost, damaged or stolen.
- Minimum due trap: The minimum due amount is displayed on the top of the billing statement, the users think it is the total amount payable and the fact is it is the least amount that has to be paid to continue using the credit card facility.
- Hidden cost: Using the credit card appears to be simple and easy, but it includes some many hidden charges like late payment fees, renewal fees etc.
- Ease of overuse: As the credit card limit is higher and it might be tempting to put all purchase on the card. The user will be unaware of how much they owe and this leads to overspending.
- Higher interest rate: If the dues are not cleared and continue to use the card further interest is charged on it. The credit card interest rates are very high.
- Credit card fraud: There are chances that the user might be a victim of credit card fraud as they are so many advance technology with can clone the card and gain the access.
An annual percentage rate is the annual interest rate charged for financing or earning through an investment and this rate of interest is intimated as the percentage, which represents the annual cost of funds over the period of time. There are different APR’s based on how the consumer uses their credit card. While selecting the credit card, it is a good idea to acknowledge these rates in addition to the credit card:
- Purchase APR: The purchasing cost of the credit card.
- Cash advance APR: The cash borrowed from the credit card can be higher in the cost. There are different formats for APR checks for certain types of advance cash and there is no grace period for that.
- Penalty APR: The extra charges can be applied to the particular balance. When the customer violates the card term and conditions like failed to make payments on time.
- Introductory APR: It is also known as a promotional APR. It is the special feature that lowers APR for the limited period of time. It also applied to the specific transactions, balance transfers, cash advances or any combinations.
Types of credit card:
- Reward CC: Most of the CCs are reward credit cards. The financial companies offer a deal or discounts on travel and hotel bookings. The others offer cash back on the purchases through the CC.
- Charge CC: This CC is similar to other CCs but that doesn’t have the spending limit. The holder should pay off the balance by the end of every month.
- Balance transfer CC: The balance of one CC can be carried to other CC. It is useful to the user with the significant amount of existing debt on high APR cards.
- Secured CC: It is useful to the user with no or low credit history. The user has to put a fixed amount of money as collateral before taking the credit card.
- Prepaid CC: It is more like the debit card. The user has to preload with the sum of amount to use it.
- Store CC: This card is issued by the retail store that is valid only at the particular chain of store. They give drastic discounts on their merchandise.
- Business CC: These cards are geared to help the benefits of business needs. They offer the discount on products and services for business.
The components included in the credit card calculator:
Payback a certain amount:
- Credit card balance.
- Interest rate.
- Minimum payment.
- How the user plans to pay off: Minimum payment/another fixed amount.
Payback within a certain time frame:
- Credit card balance.
- Interest rate.
- Payback time.
Using this credit card calculator the user can evaluate the credit card payments in two modes one is payback of a certain amount and the other one is payback in a certain time period.