Payday Loan
Introduction - Payday loan - Revolving
Credit - Open End Credit - Cash
Advance - Interest
Mortgage - Credit card - Internal - Loan - Payday loan - Loan to Value
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Credit card
A credit card system is a type of retail
transaction settlement and credit system, named
after the small plastic card issued to users of
the system. A credit card is different from a
debit card in which, during every transaction,
the money from the users's account is removed.
But in case of credit card, issuer lends money to
the consumer (or the user). It is also different
from a charge card (though this name is sometimes
used by the public to describe credit cards),
that require the balance to be paid in full each
month. In contrast, a credit card allows the
consumer to 'revolve' their balance, at the cost
of having interest charged. Most credit cards are
the same shape and size, as specified by the ISO
7810 standard.
A user is issued a credit card after an account
has been approved by the credit provider (often a
general bank, but sometimes a captive bank
created to issue a particular brand of credit
card, such as Wells Fargo or American Express
Centurion Bank), with which he or she will be
able to make purchases from merchants accepting
that credit card up to a preestablished credit
limit.
When a purchase is made, the credit card user
agrees to pay the card issuer. Originally the
user would indicate their consent to pay, by
signing a receipt with a record of the card
details and indicating the amount to be paid, but
many merchants now accept verbal authorizations
via telephone and electronic authorization using
the Internet.
Electronic verification systems allow merchants (using
a strip of magnetized material on the card
holding information in a similar manner to
magnetic tape or a floppy disk) to verify that
the card is valid and the credit card customer
has sufficient credit to cover the purchase in a
few seconds, allowing the verification to happen
at time of purchase. Other variations of
verification systems are used by eCommerce
merchants to determine if the user's account is
valid and able to accept the charge.
Each month, the credit card user is sent a
statement indicating the purchases undertaken
with the card, and the total amount owed. After
receiving the statement, the cardholder may
dispute any charges that he or she thinks are
incorrect (see Fair Credit Billing Act).
Otherwise, the cardholder must pay a defined
minimum proportion of the bill by a due date, or
may choose to pay a higher amount up to the
entire amount owed. The credit provider charges
interest on the amount owed (typically at a much
higher rate than most other forms of debt). Some
financial institutions can arrange for automatic
payments to be deducted from the user's accounts.
Credit card issuers usually waive interest
charges if the balance is paid in full each month,
but typically will charge full interest on the
entire outstanding balance from the date of each
purchase if the total balance is not paid.
For example, if a user had a $1,000 outstanding
balance and pays it in full, there would be no
interest charged. If, however, even $1.00 of the
total balance remained unpaid, interest would be
charged on the full $1,000 from the date of
purchase until the payment is received. The
precise manner in which interest is charged is
usually detailed in a cardholder agreement which
may be summarized on the back of the monthly
statement. (See The TD Gold Travel Visa
Cardholder Agreement Retrieved January 3, 2006)
The credit card may simply serve as a form of
revolving credit, or it may become a complicated
financial instrument with multiple balance
segments each at a different interest rate,
possibly with a single umbrella credit limit, or
possibly with separate credit limits applicable
to the various balance segments. Usually this
compartmentalization is the result of special
incentive offers from the issuing bank, either to
incent balance transfers from cards of other
issuers, or to incent more spending on the part
of the customer. In the event that several
interest rates apply to various balance segments,
payment allocation is generally at the discretion
of the issuing bank, and payments will therefore
usually be allocated towards the lowest rate
balances until paid in full before any money is
paid towards higher rate balances. Interest rates
can vary considerably from card to card, and the
interest rate on a particular card may jump
dramatically if the card user is late with a
payment on that card or any other credit
instrument. As the rates and terms vary, services
have been set up allowing users to calculate
savings available by switching cards, which can
be considerable if there is a large outstanding
balance (see external links for some on-line
services).
Because of intense competition in the credit card
industry, credit providers often offer incentives
such as frequent flier points, gift certificates,
or cash back (typically 1 percent) to try to
attract customers to their program.
Low interest credit cards or even 0% interest
credit cards are available. The only downside to
consumers is that the period of low interest
credit cards is limited to a fixed term, usually
between 6 and 12 months after which a higher rate
is charged. However, services are available which
alert credit card holders when their low interest
period is due to expire. Most such services
charge a monthly or annual fee.
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Grace period
A credit card's grace period is the time the
customer has to pay the balance, before interest
is charged to the balance. Grace periods vary,
but usually range from 10 - 25 days depending on
the type of credit card and the issuing bank.
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The merchant's side
Even some street market stands now take credit
cards.
Enlarge
Even some street market stands now take credit
cards.
For merchants, a credit card transaction is often
more secure than other forms of payment, such as
cheques, because the issuing bank commits to pay
the merchant the moment the transaction is
verified. The bank charges a commission (discount
fee), to the merchant for this service and there
may be a certain delay before the agreed payment
is received by the merchant. In addition, a
merchant may be penalized or have their ability
to receive payment using that credit card
restricted if there are too many cancellations or
reversals of charges.
In some countries, like the Nordic countries,
banks guarantee payment on stolen cards only if
ID card is checked. In these countries merchants
therefore usually ask for ID.
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Secured credit cards
A secured credit card is a type of credit card
secured by a deposit account owned by the
cardholder. Typically, the cardholder must
deposit between 100% and 200% of the total amount
of credit desired. Thus if the cardholder puts
down $1000, he or she will be given credit in the
range of $500–$1000. In some cases, credit
card issuers will offer incentives even on their
secured card portfolios. In these cases, the
deposit required may be significantly less than
the required credit limit, and can be as low as
10% of the desired credit limit. This deposit is
held in a special savings account.
The cardholder of a secured credit card is still
expected to make regular payments, as he or she
would with a regular credit card, but should he
or she default on a payment, the card issuer has
the option of recovering the cost of the
purchases paid to the merchants out of the
deposit.
Although the deposit is in the hands of the
credit card issuer as security in the event of
default by the consumer, the deposit will not be
credited simply for missing one or two payments.
Usually the deposit is only used as an offset
when the account is closed, either at the request
of the customer or due to severe delinquency (150
to 180 days). This means that an account which is
less than 150 days delinquent will continue to
accrue interest and fees, and could result in a
balance which is much higher than the actual
credit limit on the card. In these cases the
total debt may far exceed the original deposit
and the cardholder not only forfeits their
deposit but is left with an additional debt.
Most of these conditions are usually described in
a cardholder agreement which the cardholder signs
when their account is opened.
Secured credit cards are an option to allow a
person with a poor credit history or no credit
history to have a credit card which might not
otherwise be available. They are often offered as
a means of rebuilding one's credit. Secured
credit cards are available with both Visa and
MasterCard logos on them. Fees and service
charges for secured credit cards often exceed
those charged for ordinary non-secured credit
cards, however, for people in certain situations,
(for example, after charging off on other credit
cards, or people with a long history of
delinquency on various forms of debt), secured
cards can often be less expensive in total cost
than unsecured credit cards, even including the
security deposit.
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Introduction - Payday loan - Revolving Credit - Open End Credit - Cash Advance - Interest
Mortgage - Credit card - Internal - Loan - Payday loan - Loan to Value
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