How credit cards work?

How credit cards works:

For any transaction with credit card, there will 4 parties involved. Here are the details:

Customer/ card holder: The person who owns the card to make a purchase.

Merchant: The business / shop / hotel / etc accepting credit card for services or products sold to the customer [card holder ]

Bank: Banks who provides credit card processing services to the merchant.

Credit Card issuer: The bank which issues the credit card to its customers.

Credit card association:  Credit card networks such as, VISA, MasterCard,etc … which act as a gateway between the bank and issuer for authorizing and funding.

Example:

You went to a computer peripheral shop [Ex. Shop name is, Trendz Computer perpherals ] to buy a latest LCD monitor which costs around INR 5,000/-. You have a HSBC credit card to make the purchases. Observe that, there’ll be another name on your credit card like, VISA, MasterCard, etc.

So, you go to the shop [ Trendz Computer peripherals] and select a LCD monitor of your choice. Now, you have to make the payment through your credit card. Now, once you give your credit card to the merchant, he’ll try to process the payment by swiping in a machine labeled with ICICI. It’ll take time to process the merchant requested amount of INR 5000/-. Once it is accepted, he’ll handover a receipt to you to sign on it. Once that is done, he’ll give you the bill for your purchase.

Custoer/ Card holder à you

Merchant: Trendz Computer peripherals

Bank: ICICI BANK

Credit Card issuer: ICICI BANK

Credit Card association: VISA/MasterCard, etc.

Usually, most of the banks try to squeeze money from its customers whenever it gets a chance.

Then, why will it give the credit to the customers without any fee for 40+ days?

Here is the deal:

Higher interest rates:

Banks will charge a high interest for any dues on credit card payments.

• Establishment with merchant: Banks make money through fees from merchants.I would say, this is the one of the main business. Thousands of merchants will be there in once city. Each shop owner like, hotels, shops, thatres, malls, etc.. need a card association banker to process the credit card payment.

 For more details:

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=4379&Mode=0

Money borrowing tips

Loan against Insurance

Yes, you can take a personal loan against your insurance policies. In most of the cases, it is allowed only after 3 years of your insurance start date. You can get upto 90% of the total premium paid.

For Ex:

You are paying INR 5,000/- premium half yearly. i.e INR 10,000/- yearly.

For 3 years, INR 20,000 x 3 = INR 30,000.

You can get maximum of INR 27, 000/- personal loan with very less interest rate. Usually, blow 10% per annum.

For Ex:

You need money on 7^th year. That means, you have paid premium for 6 years.

Total premium paid is, 7 * 10,000 = INR 70,000.00

You can avail loan upto 90% of 70,000. i.e INR 63,000.

Rate of interest will be less than 10% p.a.

For details about money, procedure, etc, contact your insurance agent or the respective web site for details.

Personal Loan

This is one of the costliest loans available in the market after credit card loan. This usually costs around 14%-20% per annum. % varies from bank to bank. If you are working in an organization and holds a salary account, you may get the loan a bit cheaper from your bank ( which holds your salary account ).

When you are planning to apply for a personal loan, just check with the bank where you have salary account, for rate of interest. You can get these details even from your organization or from your colleagues for the same.

Before taking any personal loan, you should also consider the overheads like, their processing fee, insurance amount, financial charges, etc…

Usually, processing fee will be 2%, which is INR 2000 for 1 lakh.

Insurance amount may be close to INR 1000/- for 1 lakh loan.

While enquiring about loan, if possible, try to get the complete EMI details for the whole term period, including all the charges [mention “hidden charges”].

 

Property:

You can take loan against your property also. But the interest rates are not that cheaper as it for loan against insurance premium. But, it is cheaper than your personal loan.

If you have any property related to farming, you’ll get a better deal. With respect to farming land, always go for government banks for cheaper interest rates. Moreover, there will be government support for your loan also. If you pay the EMI regularly without any issues, government banks will be more happy and ready to lend you next time. It will be like personal relationship with the bank rather than just like business relation.

Always give high priority for government banks when you are applying for loan against your property.

Loan against Gold:

This is one more option for cheap interest rate. Almost all the banks will give loan against your gold. The only thing is, choosing the best one among them. The interest rate are at competitive price.SBI is offer at 7.5% pa interest rate. Rest all are giving from 10%pm to 18%pa.

Loan from employer:

Most of the companies will give advance salary for its employees under employee benefits program. Usually, companies will give this option only for the employees who have finished at least 1 year in the organization. But, it depends on each companies policies.

Most of the cases, you can get up to 1 month of your take home salary as an advance. The same amount will be deducted from your salary in the next coming months.

It only takes couple of days (less than a week ) to get the advance salary from your organization.

Always try this option if the advance amount serves your immediate needs. With this option, you don’t need to beg anybody; you don’t need any documents, processing fees, after all, no updates about you in CIBIL.

Loan from friends:

This is one of the best ways to get the money. But, it all depends on your relationship with your friends. If they are close enough, and ready to help you, better use this option (if employer option is not available).

As I mentioned as, “Friends”, most of the times, borrowing will be of no charge. No need to pay any interest. But, make sure that, you should also ready to help your friends if you can.

This option is entirely depends on your goodwill and your relationship with your friends.

This option may tighter your relationship with your friends or even it may break it J .