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While it holds true that there are lots
of benefits one can get from using credit,
it is also a fact that there are few
detriments of credit. Cost, risk and shortcoming are
all part of the system.
One cost of credit is of course interest. Interest is
one of the primary concerns of most borrowers. Interest
adds up to expense, and usually differ among creditors.
The higher the funds or amount borrowed, the higher the
interest. The first question you will hear from a
borrower usually is – “so, how much are the interest
rates?”
There are also fees and charges that apply to almost
every credit line. There are
different charges on loans. Mentioned
here are few of them. Finance charge, as one.
In cases of transactions in credit
cards, finance charge is added if the borrower has
not fully settled the amount due, before
the due date for a certain period. |
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| Another one is the late payment
charge. For failure to pay even the minimum amount due
before or on due date, a borrower may be charged
a late payment charge. Another expense that may be
incurred in credit is the annual fee. Annual fee is most
common to credit card users.
Card issuers charge annual fee, for the privilege of
using the card, more like a subscription. Yearly, the
cardholder is charged the prevailing fixed rate
depending on the type of card. And is reflected as part
of regular purchase due. Well, Another expense is the
processing fee. Credit companies charge those who want
to avail of a loan a fee called processing fee.
Processing fees are part of application process and
cannot
be reimbursed. Whether the loan is approved or not,
processing fees cannot be refunded. Every lending
institution has different rates for processing fee. The
lowest would be (P1000.00) for most government owned
lending institution and higher than that for other
institutions.
All these charges are part of credit system. Only some
out of so many reasons why these charges have been put
to the system have been stated: One, to teach people the
value and flexibility of money. Another is to control
the increasing amount of bad loans and credits, to
protect creditors from inflation, also to secure the
funds of investors. And also to make processing of loans
more organized and systematic.
The preparation of documents for loan application is
another disadvantage of credit. One must first complete
the set of requirements before the loan can be
processed. Sets of requirements vary according to the
type of loan one is applying for. The preparation time
one consumes in loan application or credit leads us to
another factor, the time frame.
Although not really a disadvantage, turn around time is
another factor to be considered. True enough for most
institutions, loans to be processed usually takes longer
than anyone can wish for. While it is also true that
some institution promotes speedy approval, but that is
if all requirements is complete already. So it is the
duty of the borrower to settle and complete the
requirements needed to get a loan approval without
delay. It is also best to ask the provider of loan for
their timetables.
Factors have been laid out. So be sure to check on these
before applying for anything.
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