Is credit card an unsecured loan?


Who doesn’t own a credit card these days? Anyone who is not holding a credit card would undoubtedly be wondered up on. It has become a nicety rather than a necessity. So, it is important to have a basic understanding of credit cards to be able to use it diligently. Simply put, it is a type of credit provided by banks for a pre-approved limit based on your earnings. It is much like a loan, but instead of taking a full cash loan, the banks let you use up the allocated credit limit according to your current requirement. It can be categorized as an unsecured loan and provided based on your income and credit history. Every time you use the credit card for a certain amount, the pre-approved limit is reduced by that amount. A major difference between a loan and a credit card is that, in case of a loan you make the repayment only for a certain period of time after which the loan is closed. But in case of a credit card, this is an ongoing arrangement wherein the pre-approved limit is always available in your card for disbursal. The physical card has an expiry date that can be renewed and you will continue to be a credit card holder for as long as you wish. Only when you choose to close the credit card and cancel it, does your credit limit cease to exist. It is for this reason, that credit cards are also called revolving accounts or open ended accounts.


So every time you make a purchase on your credit card, it gets added to your credit card bill for that month. Such purchases are accumulated and billed on a particular date called the billing date. Billing date differs from person to person and from bank to bank. After the bill is generated, the bank provides a certain time window for you to make the payment, which is called the grace period. During the grace period, which is usually between 20 to 25 days, the banks do not charge you any interest rate. They also provide you an option to either pay the total bill or the minimum balance which is a calculated percentage of your total bill. If you are able to close the total bill amount, it is well and good. However, if you choose to only make the minimum payment, banks will levy finance charges for the difference. If you are even unable to make the minimum payment, a hefty late fee will be charged which is in addition to the finance charges. The interest rate will be clearly mentioned in your monthly statement which can help to plan your purchase and repayments. Check secured loans – for your loan.

If you own a credit card, it is imperative to have a disciplined approach to using the card. Use your credit card only when there is an absolute need. For petty day today expenses food, gas and other consumables do not use your credit card, instead make the payments through your debit card or cash. It is these petty expenses that will soon push your limits on spending and you will end up with a huge bill without remembering when and what was spent. Also, have the habit of reviewing your monthly credit card statements. Though these are computerized, never assume that they are always right. There are chances of incorrect billings added to your card. Check if the expenses listed in your statement were genuinely made by you during that month and ensure your past month’s payments are reflected properly. Validate the finance charges and interest rates applied to your statement. Use your credit card diligently and be prompt in your payments. If handled properly, credit cards can be invaluable. They can take care of your urgent needs then and there, as you don’t have to go through the traditional waiting period required for loans.

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