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Banking

How does a credit card work
A credit card lets you spend money on credit. You can spend up to a pre-set credit limit, which might be a few hundred or several thousands of pounds. It depends on how confident your card provider is that you will pay it back. It is usually advisable to pay off the bill every month. If you do you won’t pay interest on what you have borrowed (except for cash withdrawals, where interest is usually charged on a daily basis from the day you take your cash). If you don’t pay off any outstanding balance in full then interest will be charged. It’s usually backdated too, so if you bought something at the start of the month you’ll be charged a whole month’s interest. Don’t be tempted to use credit cards at cash machines to withdraw money. You’ll be hit with charges – up to 4% or more with some

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Watch out for interest rates

If you don’t pay off your credit card balance at the end of the month it’s likely you’ll pay interest on what you owe on the whole of the statement balance. New customers beware! You may get an especially low introductory interest rate when you first get the card. But these usually increase considerably once the introductory period is over. If you’re transferring your balance from another card, check if you will be charged a fee, as is usually the case. The fee is often around 3%. You need to calculate whether it is worth paying a charge of 3% of the amount you are transferring to benefit from paying no interest for a limited period on the debt.


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