What is a credit card?
Icredit cards n fact, this is an ordinary bank plastic card. But it has one feature: the bank gives the holder of a credit card the right to use borrowed funds. It determines for each user a credit limit – the amount that he is ready to lend to the cardholder. With all that it implies.
Debit or credit?
If you have several plastic cards in your wallet and you forgot whether these are credit cards or debit cards, then you can figure it out in just a second. All credit cards will have a credit icon at the bottom right (below the card logo). The bank has given you personally a certain credit limit, which is linked to this card. The size of this limit is set individually (it may well reach 300% of monthly income), and the bank has the right to review it periodically.
When is the best time to get a loan?
It all depends on the way and style of life, on habits, on the way of shopping and on the financial condition of a person. If a person believes that any credit is evil, or vice versa, likes to get into debt, and gets out of them with great difficulty, then it is better to do without a credit card. If he plans his expenses, controls the overall financial situation, but does not mind having a financial airbag for a “rainy” day.
“It should be taken into account that a credit card is essentially the same loan. The limit is added to the existing loan obligations and is fixed in the Credit Register of the Bank of Latvia,” says Artur Kostin, one of the founders of the Altero.lv financial services comparison platform. “You need to pay attention to the annual interest rate, which will show how profitable the credit card is.I would definitely recommend studying the conditions for withdrawing cash at ATMs. Basically, when using a credit card, you have to pay interest. In any bank, the rate can be much lower. ”
A credit card is convenient if you plan to travel frequently. When traveling, it’s hard to predict actual expenses, so a credit card with extra cash can come in handy. Often a credit card is asked for when renting a car – both for paying for the service and as a guarantee of security. In addition, a credit card, unlike a simple settlement card, entitles you to additional bonuses (travel insurance, bonus points, friendly prices in partner banks, etc.). Therefore, it is more profitable to use credit cards than debit cards.
inally, a credit card is also a matter of prestige. Some credit cards offer a VIP package (priority airport security, personal travel assistant, etc.).
There is also a downside to the coin: as a rule, this is a higher commission fee for withdrawing cash from ATMs, as well as for annual maintenance. In addition, using a credit card also costs money – from 15 to 25% per year.
And what to choose?
If you often fly abroad, then a credit card might be better for you. If you prefer not to borrow funds, then, most likely, a regular payment card is enough for you. Banking experts argue that the best option for a modern person is a “gentleman’s kit”, which includes a payment card “tied” to a salary account and a credit card – for unforeseen expenses and travel with a credit limit.
What about interest?
It is quite possible to use a credit card competently, without financial losses. SEB bank specialists give an example. The family’s car broke down and needed urgent repairs. You have a credit card with a credit limit of 1,000 euros and suddenly need to spend 500 euros on car repairs. If, when applying for a card, the option was chosen with the repayment of the entire amount spent by the 15th day, then you do not need to pay interest for using the credit limit. That is, the use of credit money will be absolutely free, subject to the full repayment of the entire amount taken before a certain period.
Another option involves additional costs. If the cardholder has chosen the option of gradually repaying the used amount, then interest (the standard rate for SEB is 21% per annum (1.75% per month or 0.058%) will only be calculated for the days during which the credit limit was used. For example, if 500 euros were spent on car repairs on the 5th, and they were returned on the 14th (after 9 days), then in the form of interest you will have to pay 2.61 euros (500 x 0.058% x 9 days).