tiểu luận group assignment personal financecredit or credit card

HOW DO CREDIT CARDS WORK ANDHOW TO USE CREDIT CARD EFFECTIVELY?. Advantages of using credit- Emergency FundsCredit can serve as a financial safety net during unexpected emergencies wheny

DA NANG UNIVERSITY OF ECONOMICS

BANKING FACULTY

…………

GROUP ASSIGNMENT PERSONAL FINANCE

CREDIT OR CREDIT CARD

Teacher : Vuong Bao Bao

Group : 2

Members : Nguyen Thi Hong Ngoc

Hoang Mai Thi Pham Thi Minh Thi

Vo Dai Tien Thinh Duong Thi Xuan Thu Pham Thi Thuy Tram

Da Nang, 15 October, 2023 th

I ADVANTAGES AND DISADVANTAGES OF USING CREDIT 3

1 A DVANTAGES OF USING CREDIT 3

2 D ISADVANTAGES OF USING CREDIT 3

II STEPS FOR GETTING CREDIT FROM A BANK4

III DIFFERENT TYPES OF CONSUMER CREDIT 5

1 C ONCEPTS : 5

2 C LASSIFICATION 5

IV WHAT IS A CREDIT CARD? HOW DO CREDIT CARDS WORK AND HOW TO USE CREDIT CARD EFFECTIVELY? 8

1 W HAT IS A CREDIT CARD ? 8

2 H OW CREDIT CARDS WORK ? 9

3 H OW TO USE CREDIT CARD EFFECTIVELY ? 10

IMAGE CATALOG

Figure 1 How credit cards work 10

ASSIGNMENT AND EVALUATION

Hoang Mai Thi - What is credit? How credit cards

work and how to use credit card effectively?

100%

Pham Thi Minh Thi - Steps for getting credit from a bank 100%

Vo Dai Tien Thinh - Advantages and disadvantages of

using credit

100%

Duong Thi Xuan Thu - Different types of consumer credit 100%

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People have always had a difficult relationship with credit Credit has long been grouped with disadvantages and sins in ancient moral codes Borrowing is risky, financial decisions are sometimes unreasonable, and people often do not consider their current and future interests

Your financial success depends greatly on your ability to make the necessary sacrifices to spend less than you earn This allows you to save money for future uses However, you can use credit to buy homes and vehicles as well as credit cards and student loans However, paying high interest rates and overusing credit will hinder your financial success

Credit represents a form of trust established between a lender and a borrower If the lender believes that the potential borrower has both the ability and willingness to repay, the credit will be extended The borrower is expected to satisfy that trust by repaying the lender For the privilege of borrowing, lenders require borrowers to pay interest and sometimes other fees

You cannot borrow your way to financial success, even though advertising suggests otherwise In reality, using credit requires careful thought and planning so you don't get overwhelmed Unfortunately, it often takes people who overuse quite a few years to pay off their debt and get their lives back on track

Before borrowing, you first need to consider whether the reason you are borrowing

is reasonable or not, then decide in advance how you will repay the debt This is especially true with credit cards Credit card usage can be managed so that you pay no interest at all This happens when you pay off the card balance in full every month and about half of the cardholders

Layout of the topic:

I Advantages and disadvantages of using credit

II Steps for getting credit from a bank

III Different types of consumer credit

IV What is credit? How credit cards work and how to use credit card effectively?

I Advantages and disadvantages of using credit

1 Advantages of using credit

- Convenience

Credit cards and loans offer a convenient way to make purchases and access funds when needed, even if you don't have the cash on hand

- Building Credit

Responsible use of credit can help you build a positive credit history, which is essential for obtaining loans, mortgages, and favorable interest rates in the future

- Emergency Funds

Credit can serve as a financial safety net during unexpected emergencies when you need money quickly

- Rewards and Perks

Many credit cards offer rewards, cashback, or other benefits, such as travel miles or purchase protection

- Deferred Payments

Credit allows you to make a purchase now and pay for it later, which can be helpful for large expenses like a car or home

2 Disadvantages of using credit

- Debt Accumulation

One of the most significant drawbacks of using credit is the risk of accumulating high levels of debt This can lead to financial stress and difficulty making payments

- Interest Costs

Borrowing money through credit cards or loans typically comes with interest costs, which can add up over time and make your purchases more expensive

- Credit Score Impact

Mismanagement of credit can negatively affect your credit score, making it harder to secure loans and potentially resulting in higher interest rates

- Overspending

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Credit can make it easier to overspend because you may not feel the immediate impact on your bank account This can lead to impulse purchases and financial trouble

- Fees and Penalties

Credit cards and loans often come with various fees and penalties, such as late payment fees and annual fees, which can increase the cost of using credit

- Fees and Penalties

Using credit cards online or in physical stores carries the risk of credit card fraud, which can result in unauthorized charges and potential identity theft

- Dependency

Relying too heavily on credit can lead to financial dependency on borrowed money, making it challenging to live within your means

It's important to use credit wisely and understand the terms and conditions of any credit product you use Responsible use of credit can offer many benefits, while irresponsible use can lead to financial difficulties Always strive to maintain a healthy balance between credit usage and financial responsibility

II STEPS FOR GETTING CREDIT FROM A BANK

- Research and compare credit products

First, research the different credit products the bank offers, such as credit cards, consumer loans, or home loans Compare interest rates, service fees, loan terms and other offers to choose the right product for your needs

- Review credit requirements

Carefully read the bank's credit requirements and conditions You need to check income requirements, credit scores, collateral, and other personal information Make sure you meet these requirements before continuing

- Prepare necessary documents

Gather and prepare necessary documents for the registration process This includes documents such as ID card, household registration, electricity/water bill, tax receipt, salary book and other documents required by the bank

- Fill out the credit application

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Fill out the credit application according to the bank's instructions Please make sure you have provided accurate and complete information on this application

- Submit application

Submit application along with necessary documents to the bank You can submit directly at the bank branch or through the online system if available

- Wait for approval

The bank will review your application and decide whether you qualify for credit Approval time may take a long time depending on each bank's process

- Sign a contract

If your application is accepted, you will need to sign a contract with the bank Please read carefully and understand the terms and conditions in the contract before signing

- Receive credit products

After signing the contract, you will receive credit products according to your request For credit cards, for example, the bank will send you the card to use

 Note that this process may vary depending on the bank and type of credit product Contact your bank or check their website for specific information [1] [2]

III Different types of consumer credit

1 Concepts:

Consumer credit is understood as a form of credit created to provide individuals

or households to fulfill their needs for purchasing goods and services With consumer credit, borrowers can buy goods and use services immediately without having to wait for long-term savings It will be accumulated and paid in installments according to the signed agreement on principal and interest each month

The limit will be calculated based on the borrower's average income and the term of consumer loans is usually less than 5 years

2 Classification

- Secured credit

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Means you mortgage your assets, so that if you default on your debt obligations, the lender can take the assets Secured loans are loans collateralized

by an asset Such as a house, car, land This asset will secure the loan This means that when you agree to borrow, you agree that the lender can repossess the collateral if you cannot repay the loan as agreed You still have the right to use the property when you mortgage it with the lender They will keep documents proving the right to use and own the property At the same time, they will issue you a mortgage receipt for you to use in daily activities This type of loan will provide a lower interest rate

- Unsecured credit

The lender will extend a credit limit to you without collateral That's why they're especially interested in reviewing your credit history and asking about your income to ensure that you have a responsible payment record and the means to pay your bills As the name suggests, an unsecured loan is a loan that

is not tied to any assets The lender cannot automatically seize your property to pay for the loan Unsecured loans have higher interest rates

 Trust loan: in English is Entrusted Loan Entrusted lending is the entrusting party's transfer of capital to the entrusted party through a loan entrustment contract to directly lend to customers, the entrusting party pays fees to the entrusted party

 Overdraft: is a service that allows customers to spend more than the actual amount of money in their account Customers will have to pay back the borrowed amount and also have to pay interest calculated based on the amount used in excess of that overdraft limit

- Installment loan

Installment credit is a loan of a specified amount that is issued in a lump sum and then repaid over a certain period of time Payments are usually made monthly in equal or unequal installments

Installment credit can be used for many reasons, including large purchases such

as major appliances, cars and furniture Installment credit typically has lower interest rates than revolving credit When borrowing, you usually do not have to

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mortgage assets like other loan methods, but just need to go through proof procedures with the lending financial institution and wait for approval This type of loan has two main cases: cash loan or loan to buy products and services and you only need to pay a certain amount in advance, the remaining amount will be paid in installments over the agreed period Usually, the amount

of money you have to pay upfront to buy an item is very low, a minimum of about 20% and a maximum of 70% of the value of the item you buy The remaining amount is calculated according to the product value and you will be paid in monthly installments

Benefits of installment loans

Loan amount can be up to 500 million

 Fast and convenient Customers can be approved for loans immediately without having to prove or wait as long as with a mortgage

 Flexible repayment time Borrowers can choose a long or short repayment period depending on their ability Normally, the loan term limit is 3 to 60 months depending on the loan amount

˗ Loan without installment payments

 Single-payment: a borrower might take out a loan of $2000 at 10 percent interest for one year If so, a single payment of $2200 would be due at the end of one year

 Revolving credit: includes credit cards, which can be used for any purchase Credit is "revolving" in the sense that the line of credit remains open and can be used multiple times up to the maximum limit, as long as the borrower continues to pay the minimum monthly payment on time Credit is extended before any transaction so that borrowers do not need to reapply each time they want to borrow Any debt will be repaid in full in one payment or through a series of equal or unequal payments usually made monthly Borrowers can use the account as long as the total amount owed does not exceed their credit limit This credit limit amount, set by the lender, is the maximum debt balance allowed on the credit account The credit limit varies depending on the creditworthiness of the borrower

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In fact, it may never be paid off because consumers pay only the minimum and allow the remaining debt to accumulate interest from month to month Revolving credit is available at relatively high interest rates because it is not secured by collateral

A credit card is an example of a revolving credit card, a card that allows the cardholder

to make card transactions within the credit limit granted under the agreement with the card issuer In other words, this is a form of borrowing money from the bank to pay in advance and at the due date, the cardholder is responsible for paying the bank back in full Credit cards do not charge interest but require users to pay their balance when they receive their statement, usually monthly [3] [4] [5]

IV What is a credit card? How do credit cards work and how to use credit card effectively?

1 What is a credit card?

A credit card is a financial tool that allows you to borrow money from a bank or financial institution up to a predetermined credit limit Instead of using cash, you can make purchases or pay for services using the card

This is similar to taking out a loan You are borrowing money to pay for something you want or need

Later, you are responsible for paying that money back

The amount you owe on a credit card is called the balance If you make a $100 purchase, your card's balance would increase by $100

Each credit card has a credit limit, which is the maximum amount you can owe the bank at one time For example, if your card's credit limit is $1,000, then the balance can't exceed that amount

The difference between your credit limit and your balance is known as your available credit Continuing the example above, if your card has a $1,000 credit limit and a $100 balance, the available credit would be $900

After you make a payment, you have more available credit to borrow again For that reason, a credit card is considered a revolving line of credit You can keep using it and borrowing from it, as long as you pay your bill and have credit available [6]

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