Credit cards
What Is a Credit Card?
A credit card is a financial tool that allows the cardholder to make purchases or transactions with a pre-approved credit limit, to be paid off later. The card issuer typically offers an interest-free period of up to 50 days from the date of purchase, during which the balance can be paid off in full. To avoid penalties, the cardholder can pay the minimum amount due, usually between 5% and 10% of the total balance. However, the remaining balance will carry over to the next month, accruing interest as set by the credit card company.
How Does a Credit Card Work?
A credit card essentially allows you to make purchases now and pay for them later. When you use your credit card, you’re borrowing money from the issuer until you settle the balance at the end of the billing cycle. Here are some key points to know before getting a credit card:
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Credit card companies issue cards to individuals with a steady income.
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If you have a good credit score, obtaining a credit card is easier.
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You can also get a credit card secured against a fixed deposit.
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The credit limit assigned is usually 3 to 5 times your monthly income, depending on the bank.
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While popular banks issue credit cards, the payment is processed by networks like Visa, MasterCard, and RuPay. However, these networks do not set terms like interest rates, minimum dues, or reward points—these are determined by the card issuer.
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Loans
What Is a Loan?
A loan is a financial agreement where a lender provides funds to a borrower, with the promise that the borrower will repay the amount over time, usually with interest. Loans are used for a variety of purposes, such as buying a home, starting a business, or covering personal expenses. The terms of the loan, including interest rates and repayment periods, depend on the type of loan and the borrower’s creditworthiness. To qualify for a loan, borrowers must meet eligibility criteria such as income level, credit score, and, in some cases, provide collateral.
Types of Loans
There are different types of loans available depending on your financial needs:
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Personal Loans
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Home Loans
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Auto Loans
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Education Loans
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Business Loans
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Mortgage Loans
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Loan on Property
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OD Loans
Each type of loan comes with its own set of terms, including interest rates, repayment periods, and eligibility requirements, helping you find the best option for your financial situation.
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Secured Loans
A secured loan is a type of loan that requires the borrower to provide collateral, such as a house, car, or other valuable assets. The collateral acts as a security for the lender, reducing their risk. In the event the borrower defaults on the loan, the lender can seize the collateral to recover the outstanding amount. Secured loans typically come with lower interest rates and longer repayment terms due to the reduced risk for the lender. Examples of secured loans include home loans, auto loans, and mortgage loans.
Unsecured Loans
Unsecured loans, on the other hand, do not require any collateral. Lenders provide these loans based solely on the borrower’s creditworthiness, income, and ability to repay. Since there is no asset backing the loan, the risk for lenders is higher, resulting in higher interest rates and, often, shorter repayment terms compared to secured loans. Unsecured loans include personal loans, credit card debt, and education loans. Approval for these loans depends heavily on the borrower’s credit score and financial history.
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