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 ASSIGNMENTPERSONAL FINANCE

CREDIT OR CREDIT CARD

Teacher: Vuong Bao Bao

Group: 2

Members: Nguyen Thi Hong Ngoc

Hoang Mai ThiPham Thi Minh ThiVo Dai Tien ThinhDuong Thi Xuan ThuPham Thi Thuy Tram

Da Nang, 15 October, 2023th

I.ADVANTAGES AND DISADVANTAGES OF USING CREDIT31.ADVANTAGESOFUSINGCREDIT 32.DISADVANTAGESOFUSINGCREDIT 3II.STEPS FOR GETTING CREDIT FROM A BANK4

III.DIFFERENT TYPES OF CONSUMER CREDIT 5

1.CONCEPTS: 52.CLASSIFICATION 5IV WHAT IS A CREDIT CARD? HOW DO CREDIT CARDS WORK ANDHOW TO USE CREDIT CARD EFFECTIVELY? 8

1.WHATISACREDIT CARD? 82.HOWCREDIT CARDSWORK? 93.HOWTO 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 cardswork and how to use credit cardeffectively?

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

Too long to read onyour phone? Save

to read later onyour computer

Save to a Studylist

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

Your financial success depends greatly on your ability to make the necessarysacrifices 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 andstudent loans However, paying high interest rates and overusing credit will hinderyour financial success.

Credit represents a form of trust established between a lender and a borrower If thelender believes that the potential borrower has both the ability and willingness torepay, the credit will be extended The borrower is expected to satisfy that trust byrepaying the lender For the privilege of borrowing, lenders require borrowers to payinterest and sometimes other fees.

You cannot borrow your way to financial success, even though advertisingsuggests otherwise In reality, using credit requires careful thought and planning soyou don't get overwhelmed Unfortunately, it often takes people who overuse quite afew 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 borrowingis reasonable or not, then decide in advance how you will repay the debt This isespecially true with credit cards Credit card usage can be managed so that you pay nointerest at all This happens when you pay off the card balance in full every month andabout half of the cardholders.

Layout of the topic:

I Advantages and disadvantages of using creditII Steps for getting credit from a bankIII Different types of consumer credit

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

I.Advantages and disadvantages of using credit1 Advantages of using credit

- Emergency Funds

Credit can serve as a financial safety net during unexpected emergencies whenyou need money quickly.

- Rewards and Perks

Many credit cards offer rewards, cashback, or other benefits, such as travelmiles or purchase protection.

- Interest Costs

Borrowing money through credit cards or loans typically comes with interestcosts, 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 itharder to secure loans and potentially resulting in higher interest rates.- Overspending

6

Credit can make it easier to overspend because you may not feel the immediateimpact on your bank account This can lead to impulse purchases and financialtrouble.

- Fees and Penalties

Credit cards and loans often come with various fees and penalties, such as latepayment 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 cardfraud, which can result in unauthorized charges and potential identity theft.- Dependency

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

It's important to use credit wisely and understand the terms and conditions of anycredit product you use Responsible use of credit can offer many benefits, whileirresponsible use can lead to financial difficulties Always strive to maintain ahealthy 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 termsand 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 checkincome 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 Thisincludes documents such as ID card, household registration, electricity/waterbill, tax receipt, salary book and other documents required by the bank.- Fill out the credit application

7

Fill out the credit application according to the bank's instructions Please makesure you have provided accurate and complete information on this application.- Submit application

Submit application along with necessary documents to the bank You cansubmit 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 forcredit 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 contractbefore signing.

- Receive credit products

After signing the contract, you will receive credit products according to yourrequest 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 credit1 Concepts:

Consumer credit is understood as a form of credit created to provide individualsor households to fulfill their needs for purchasing goods and services Withconsumer credit, borrowers can buy goods and use services immediately withouthaving to wait for long-term savings It will be accumulated and paid ininstallments according to the signed agreement on principal and interest eachmonth.

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

2 Classification

- Secured credit

8

Means you mortgage your assets, so that if you default on your debtobligations, the lender can take the assets Secured loans are loans collateralizedby an asset Such as a house, car, land This asset will secure the loan Thismeans that when you agree to borrow, you agree that the lender can repossessthe collateral if you cannot repay the loan as agreed You still have the right touse the property when you mortgage it with the lender They will keepdocuments 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 Thistype of loan will provide a lower interest rate.

- Unsecured credit

The lender will extend a credit limit to you without collateral That's whythey're especially interested in reviewing your credit history and asking aboutyour income to ensure that you have a responsible payment record and themeans to pay your bills As the name suggests, an unsecured loan is a loan thatis not tied to any assets The lender cannot automatically seize your property topay for the loan Unsecured loans have higher interest rates.

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

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

- Installment loan

Installment credit is a loan of a specified amount that is issued in a lump sumand then repaid over a certain period of time Payments are usually mademonthly in equal or unequal installments.

Installment credit can be used for many reasons, including large purchases suchas major appliances, cars and furniture Installment credit typically has lowerinterest rates than revolving credit When borrowing, you usually do not have to

9

mortgage assets like other loan methods, but just need to go through proofprocedures with the lending financial institution and wait for approval.This type of loan has two main cases: cash loan or loan to buy products andservices and you only need to pay a certain amount in advance, the remainingamount will be paid in installments over the agreed period Usually, the amountof money you have to pay upfront to buy an item is very low, a minimum ofabout 20% and a maximum of 70% of the value of the item you buy Theremaining amount is calculated according to the product value and you will bepaid in monthly installments.

Benefits of installment loans Loan amount can be up to 500 million

 Fast and convenient Customers can be approved for loans immediatelywithout having to prove or wait as long as with a mortgage.

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

˗ Loan without installment payments

 Single-payment: a borrower might take out a loan of $2000 at 10 percentinterest for one year If so, a single payment of $2200 would be due at theend 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 andcan be used multiple times up to the maximum limit, as long as the borrowercontinues to pay the minimum monthly payment on time Credit is extendedbefore any transaction so that borrowers do not need to reapply each timethey want to borrow Any debt will be repaid in full in one payment orthrough a series of equal or unequal payments usually made monthly.Borrowers can use the account as long as the total amount owed does notexceed their credit limit This credit limit amount, set by the lender, is themaximum debt balance allowed on the credit account The credit limit variesdepending on the creditworthiness of the borrower

10

In fact, it may never be paid off because consumers pay only the minimum andallow the remaining debt to accumulate interest from month to month Revolvingcredit 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 cardholderto make card transactions within the credit limit granted under the agreement with thecard issuer In other words, this is a form of borrowing money from the bank to pay inadvance and at the due date, the cardholder is responsible for paying the bank back infull Credit cards do not charge interest but require users to pay their balance whenthey 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 orfinancial institution up to a predetermined credit limit Instead of using cash, you canmake purchases or pay for services using the card

This is similar to taking out a loan You are borrowing money to pay for somethingyou 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 $100purchase, your card's balance would increase by $100.

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

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

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

11

2 How credit cards work?

Figure 1 How credit cards work

Credit cards provide people with revolving open-end credit, which they can drawfrom repeatedly up to some preset limit.

A credit provider, such as a bank, agrees to make a certain amount of creditavailable to the cardholder The cardholder can then use this credit as their wish.Simply by presenting the card at a place of business that accepts the credit card, thecardholder can make a purchase without using any cash They can continue to use thecard until reaching the credit limit Once they’ve reached their limit, they can't chargeany more to the card until they've paid off some of their balance.

At the end of each month, the cardholder receives a bill listing all of the credit cardpurchases This bill tells them their outstanding balance and the minimum amount theyneed to pay to avoid a late payment fee.

If they pay back their entire balance before the bill is due, they won't owe anyinterest But if they don't pay back the full balance, the remainder begins to accrueinterest, which are caused by the annual percentage rate (APR).

APR is how much the credit issuer charges you to borrow a line of credit It ischarged on any outstanding balance after the credit card’s payment due date To avoidpaying interest charges, you need to pay off the full statement balance every due date.According to U.S News, the average APR on all cards is 15.56 percent to 22.87percent.

Here's an example of how APR works: Your credit card has an APR of 18% Your credit card balance is $1,500

12