Credit Definition

What is credit?What is credit?

People take credit for various reasons. Credit can help make a large buying or can be used when a certain sum of money is needed due to some emergency. It also gives protection in case of any Visa payment card buyings, if your card has been involved in fraudulent activity or you are not satisfied with an item.

There are two major kinds of credit:

Fixed-repayment loans include personal loans, shop loans, home loans, or mortgages that are related to a certain thing or things and generally repaid in regular installments over an agreed period of time. Most personal loans are repaid in the form of equal amount of money.

Revolving credit give you access to a certain sum of money on your credit card that you can spend as you want at a number of various retailers. Every time you spend some of the amount, the outstanding amount is available for you to pay off again.

To avoid financial penalties you should carry out your payments on time no matter what kind of loan you have.

Creditors generally charge interest on revolving credit and loans in order to compensate the lending risk. While calculating your repayments it is necessary to take interest into consideration.

For instance, if you borrow €200 and interest makes up 10% annually, the total cost of the loan is
€120.

It is a common thing when the creditor charges compound interest rates, it implies that interest is calculated on the sum you owe at regular periods. Interest may be complicated after any time interval – a day, a week, a year, etc. For instance, if your credit is €100 and your interest rate is 10% each year, you will owe €110 at the end of the first year. In the next year the creditor charges 10% of this amount, so you will owe €121.

With revolving credit, you can pay any amount you wish at any time. If you repay the total amount you owe on the day when you must make the first payment, you can not pay any interest at all.

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