Still thinking whether to apply for a loan from licensed moneylenders or not? This article will help you understand and decide what debt and credit are. Read on, so you will know what you are getting yourself into.
What are debt and credit?
To put simply, debt is an amount of money borrowed by one party from another (Investopedia). Companies and each of us have probably used debt to acquire things we cannot afford. There are different types of debt. Most common examples of debts are loans and credit card debts. Loans are applied to buy a new house, car or putting up a business. On the other hand, credit card debt is also like a loan which you need to repay on an agreed date and interest. However, credit card debts’ interest and other charges can get higher over some time.
According to Investopedia, credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date with consideration, generally with interest. Credit would also refer to whether a person can be granted to acquire debt or borrow money from a licensed moneylender. It is called creditworthiness or credit history.
Credit Card Licensed Money Lender Perks and Perils
Here are the advantages when you opt to use a credit card to purchase:
• Fast transactions- You can get what you need in just one swipe at about 30 seconds. This helps especially in times of emergencies.
• Cashless- Imagine the comfort of not carrying lots of money and coins each time you go shopping. Plus, you are less likely to be targeted by robbers when you carry a card and not a bag full of cash.
• 0% promos- Most stores offer 0 installment and 0% interest deals if you use your credit card to purchase.
• Earn rewards- Credit companies allow you to accumulate points each time you use your card. You can use these points to buy or claim great rewards.
• Improves credit score- Licensed moneylender considers your credit card activity as a factor for your credit rating. It is not actually how much you borrowed, but your ability to repay.
Now let us take a look on the other side of the coin, here are the disadvantages of debt from credit cards:
• Debt trap- Mismanaged credit cards will drag you to piles of debt. It would be so easy to swipe and swipe but can you handle your monthly bills?
• Interest- If you are not careful and not pay your dues in full, you are just paying the interest of the item that you bought.
• Hidden charges- Since you are more focused on the fast and cashless transactions; you may not realize that there are other fees attached to your bills. This may include processing fees, late fees, and other surprise fees you did not see when you swiped your card.
Debt from licensed moneylender like a credit card can make your life easier. But if you are not that financially wise, you might reap its perils rather than the perks.