This content originally appeared on DEV Community and was authored by Madhav Ganesan
Types of Loans
Personal Loan
- It is an unsecured loan given by a bank or financial institution to an individual for personal use, such as emergencies, education, travel, or debt repayment, and it is repaid in fixed monthly installments with interest.
Home Loan
- It is a secured loan from a bank or financial institution used to purchase, construct, or renovate a house, where the property itself acts as collateral until the loan is fully repaid.
Education Loan
- It is a loan provided by a bank or financial institution to cover expenses related to higher education, such as tuition fees, books, and living costs, which is usually repaid after the completion of the course.
Car Loan
- It is a secured loan provided by a bank or financial institution to purchase a new or used car, where the vehicle itself serves as collateral until the loan is fully repaid.
Credit Card
- It is a payment card issued by financial institutions, such as banks, which allows the cardholder to borrow funds to make purchases or pay for services.
- The cardholder is required to repay the borrowed amount either in full or over time, with interest applied to any unpaid balances.
Interest rate: (30-40)%
(Note: Ensure that we have equivalent amount in savings account that we are going to use in credit card)
Grace Period:
The time period during which the cardholder can pay off the balance without incurring interest charges, typically 20-50 days from the statement date.
Credit Limit:
The maximum amount of money the cardholder can borrow, determined by the issuing bank based on creditworthiness.
Rewards and Benefits:
Many credit cards offer rewards such as cashback, points, or air miles for every transaction made.
Minimum Payment:
- It is the amount the cardholder must pay each month.
- If only the minimum payment is made, interest is charged on the remaining balance.
Credit Utilization Ratio
- It is the percentage of your total available credit that you are currently using at any given time.
- It is an important factor in determining your credit score, as it reflects how responsibly you manage credit.
- A lower credit utilization ratio generally indicates that you are using credit wisely and are less risky for lenders.
- The ideal credit utilization ratio is generally considered to be below 30%.
Types of Credit Cards
1) Shopping Credit Cards
2) Fuel Credit Cards
3) Lifetime Free Credit Cards
Charges
Joining and Annual Maintenance Fees:
Fees for initiating and maintaining your credit card, which may be waived if you meet specific usage thresholds.
Interest Charges:
Interest applied if you fail to pay the full credit card bill, typically based on an Annual Percentage Rate (APR) that increases with delayed payments.
Late Payment Fee:
A fee charged when you fail to make at least the minimum payment by the due date, which increases as the overdue amount grows.
Overlimit Fee:
A penalty applied when you exceed your credit limit, usually calculated as a fixed fee or a percentage of the overspent amount.
Cash Advance Fee:
A fee for withdrawing cash from your credit card, often charged at a rate of around 2.5% of the withdrawn amount, even during the interest-free period.
Foreign Transaction Fee:
A fee for international transactions, typically ranging from 2% to 5%, to cover currency conversion costs.
Card Replacement Fee:
A fee for replacing a lost, stolen, damaged, or expired card, which may vary by card issuer.
Goods & Services Tax (GST):
A 18% GST levied on credit card services, including annual fees, interest payments, and EMI processing fees.
Rewards Redemption Fee:
A fee applied when redeeming reward points for benefits like gift cards or travel vouchers, which may be deducted from the total redemption value.
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This content originally appeared on DEV Community and was authored by Madhav Ganesan