Credit is a necessary evil. There are two things that credit can mean in the world of finance. First is your personal credit. This means how you treat money that is extended to you. If you do well, your credit score goes up. If you do poorly with the money extended to you, your credit score goes down. The other thing that credit means, is the actual money that is extended to you. If you go and put an application for a credit card. That will be money that is being lend out to you. That money is called credit as well.
Lets talk about the world of your personal credit. Often times we have to make large purchase. Most times the ones wanting to make a large persona are not bale to do so with ash outright. The institution you are working with will give you credit. For example, to buy a car. You then are responsible how you treat that credit. You will have a certain amount extended to you. That amount will have to be paid of in a certain amount of time. Usually monthly. you are responsible for making that payment. if you keep the terms obligations, your credit goes up. If you fail to make payments on time,your credit goes down. Either going up or down will effect your future ability to get credit. The better it is treated, the easier credit will be to acquire. You will also see better terms of the credit,if you treat it right. If you treat it poorly, you will have terms, that are regulated in favor of the institution you are borrowing money from. Most times, those institutions wont even lend you money to begin with.
There are numerous types of create. The opening line "credit is a necessary evil" is one that I believe. I think it is always better to buy wit cash. However, if you are unable to come up with cash credit is a huge deal for you. This will be especially true when it comes to large purchases. Purchases of things such as cars and homes. Credit in most of these situations is used. Use it right and it can benefit you greatly.
Now lets touch on that actual credit that is extended to you. We will use the example of a car purchase to make it understandable. You usually go into a car dealership with some money. That money being the down payment. The rest is usually going to come from the bank. The dealership you want to buy the car from works with certain banks depending on the purchasers credit. Lets say you want to buy a car that is 15,000. you have saved all of your life an you have personally come up with 5,000. This is large amount to put down for a car. However for the sake of math we will us this number. You will now owe the bank the dealership is working with 10,000. The bank will then give you terms. The terms will depend on the credit that you have established. The better you have treated your credit, the better the terms.
So the bank lends you 10,000 for the car that you want. You will have to pay that back monthly. Here is how the bank makes their money. They will charge you what is called an interest rate. That will be a percentage of what you have borrowed. Again the better your credit, the better the percentage. You will now have an obligation to pay the interest rate. Lets say your percentage is 5 percent. This is right in the range of normal interest for good credit. You have great credit it may go lower. Band, again you may be paying through the nose. So you now have 10,000 and 5 percent of that, that you have to pay.The bank will break it down monthly. They will also give you a time frame yo pay it back. This is usually in years. For this we will use 5 years. Now you have a loan for a car for 10,000 at 5 percent for the next five years. This is how you find out your payment. You will take 10,000 and add 5 percent to that. Then take that number and divide it by the 48 months that 5 years equals. that number will be around your monthly payment.
