Credit can generate mixed feelings
On the one hand, it allows us to invest in the home or face unexpected events. On the other hand it can generate stress, especially if the interest rate is high and we can not cope with the payments, which could result in collections calls and reports to the credit bureau. Before getting into debt it is convenient to understand the loan conditions and choose the correct credit. The most common credits are for the acquisition of goods such as cars or houses and credit cards.
The credit card is a type of revolving credit , since the available amount is used, paid and used again. When granting a credit card the bank operates in good faith, based on the behavior of the client and the management of their existing accounts, or requesting information from the credit bureau. The bank provides a line of credit with a pre-authorized amount called the credit limit with which you can buy or pay for goods and services at the discretion of the cardholder.
The credit limit can be used in its entirety or only a part and the money is paid after the cut of the month and a few days before the payment deadline . There is the option either to pay the total amount if we do not want to generate interest, or if we can not pay the total to pay an amount equal to or greater than the minimum indicated in the statement , and pay the corresponding interest
Credit cards offer direct debit , very useful for programming recurring payments
The client pre-authorizes the bank to withdraw resources each month on specific dates to pay, by electronic transfers, services such as telephone or water. It is important to ensure that there are always enough funds to cover the payments, otherwise extra overdraft fees may be generated.
In a personal loan the bank or financial institution makes available to the client a sum of money with the obligation to return the principal and also pay agreed interest. The client uses the amount loaned freely, without having to use it for the consumption of a specific good or subject. A personal loan can even be used for the payment of other debts, especially credit card, which is recommended when the loan has a lower interest rate than the card. If it is in your plans to take a trip, start a small business, buy appliances, finance studies or make home repairs, but you do not have enough money, personal credit is an alternative to complete what you need.
Mortgage and auto loans are pledge credits , because a guarantee is taken to grant them. The mortgage or housing credit , includes the acquisition of a real estate, that is, a land, house or apartment, but can also be for the expansion or improvement of a property. The banks grant up to 90% of the total cost of the property and the rest is provided by the client. The mortgage is paid every month for 10 or 20 years, depending on the ability of the borrower to pay. The bank takes the property or another of the same or greater value as collateral, to recover its investment if the client can not pay.
With auto credit one can buy a car through a loan from the bank or from an automotive agency
The customer gives a down payment that usually goes from 20 to 35% of the total value of the car and the bank or the agency finances the rest. During the life of these loans, which range from twelve to 72 months, the debtor is obliged to pay a fee that covers part of the cost of the car plus another corresponding to interest. The purchased car is the credit guarantee.
Surely you have a cell phone that you received when you bought a plan. The telecommunications companies and self-service stores offer their clients a credit for the acquisition of durable consumer goods or ABC credit , so that people can buy appliances, computers or mobile devices that are paid monthly for 12 and up to 24 months
What factors to take into account to choose the best credit:
The interest rate is an annual or monthly percentage that is paid on the capital, this can be fixed (it is an absolute number that does not vary), variable (if adjusted according to a market rate such as the TIIE), or mixed (fixed for the first few years, and becomes variable after a predefined period).
Commissions are amounts that banks charge for services related to loans
Before hiring, ask what are the fees for opening the loan, for annuity, or for other services such as card replacement.
The total annual cost (CAT) is an indicator of the total cost of financing with which it is possible to compare the financial cost between loans and includes the initial interest rate, commissions, insurance premiums and guarantees. Ask what the CAT of your loan is and compare it using one of the various tools available on the internet
Find out more about the extra costs of the credit you request, and those that would be generated in case of falling into a delay such as default interest, collection costs and management in late payments. Do you plan to make payments in advance? Ask if there are any conditions that limit advance payments, because in fixed-term credits can apply penalties. Whenever possible, try to avoid loans that charge high fees for early cancellation.
Also consider the repayment term (the time to return the borrowed money). A rule of thumb is that the duration of the loan should not be greater than the life of the thing you are paying. You do not want to continue paying for something you’ve already enjoyed a while ago. It is not advisable to ask for long loans to finance holidays, parties, or weddings. And do not ask for an auto loan for a period longer than the useful life of the vehicle.
The amount of the loan, the term the interest rate and the commissions determine the monthly payment to pay. The longer term, the lower the monthly fee, but the higher the total cost because you will continue to pay interest for a longer time.
Read the credit contract very well and clarify all your doubts BEFORE SIGNING and signing only when you feel sure of acquiring the responsibility involved in accepting a loan.
If you want to study more about concepts related to credit that must be taken into account when hiring a loan, check this link to the official page of the Bank of Mexico