Cost of Credit

Cost of Credit




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It is important to understand the costs of different forms of credit. Some forms of credit may be easier to get than others, but in any case, they are always accompanied by a cost, which can often be high.

If you are thinking about applying for a loan or opening a credit account, your first step should be to calculate how much it will cost you, and the second is to see if you can or will not pay. Then you should look for the best options. When applying for the loan, there are three main terms you need to be familiar with:

Capital: The amount of money you are borrowing.
Interest Rate: What the lender charges you for allowing you to use your money. It is a percentage of the capital (charged per year, month, or week).
Associated Costs: Within these costs is what the lender must spend to review your credit application or to service your account (maintenance costs, service charges, arrears charges, and others).
Because it costs money to use credit, it should generally be used for things that have a useful life beyond the term in which you finish paying your debt.