Wednesday, April 27, 2011

Understand the Cost of Credit

It is important to know and weigh your options before making a credit decision. When you sign or cosign an application for credit, you are agreeing to all its terms. Make sure you understand what you are agreeing to before you sign the papers. Now credit card companies need to have information on the statements about how long it will take you to pay off your balance if you only pay the minimum payments.
Other things to consider are:
The Interest rate or APR - APR is the annual interest rate you will be charged on a loan or the unpaid balance of a credit card.
Length of the loan - as the length of the loan increases, the monthly payment will decrease, but the total interest charge will increase.
Finance charge - total cost of the loan stated in dollars.
Credit limit - the maximum amount you can borrow at any time.
Minimum monthly payment - the smallest payment your creditor will accept. Some people think they are doing alright if they can make their minimum payments. In many cases, the minimum payment barely covers the interest charges.
Grace period - number of days you have to pay your bill in full before interest is charged.
Over the limit and late fees - the amount you will be charged if you are late with a payment or go over your credit limit. With the new rules, the credit card companies need to give you a longer period between when you get the bill to the due date than they used to.

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