A housing loan is a long-term commitment and the home it provides will be important to your health and wellbeing. You should not jeopardise this by over-committing yourself with other credit. Other credit reduces the amount you can borrow and whether you are able to make your home loan repayments. The most common reason borrowers get into difficulties repaying their mortgage is over commitment to other credit.
The larger your deposit, the easier it will be to buy a home. You will not need to borrow as much. Generally, you will need between 5% and 20% of the purchase price of the property as a deposit. However, some lenders will lend 100% of the value of the property provided the borrower meets certain strict conditions.
The importance of assets to well-being and economic security compels an interest by policy makers in low-income asset building (Sherraden 1991, Oliver and Shapiro 1995, Shapiro and Wolff 2001, Retsinas and Belsky 2002a). By one measure of asset poverty, as many as 41 percent of households in 1999 had inadequate savings or other liquid assets to cover three months of expenses at the poverty level (Caner and Wolff 2001).1 Even if households were to liquidate all their assets and use them to repay all their debts, one-quarter of them still would not have enough to cover three months of basic living expenses. Among those with the lowest incomes, asset poverty is more severe. Fully one-third of all homeowners and two-thirds of all renters in the bottom income quintile, for example, had $500 or less in savings and other liquid assets in 2001 (Chart 1).
Not all assets have equal appeal or priority as targets for policy. Of greatest interest are those with the potential to appreciate in value, such as real estate, or to enhance the income earning capacity of their owners, such as vehicles (under the assumption that they expand the range of locations over which employment can be found) or equity in a business. Among assets with the potential for appreciation, homes, transaction accounts and retirement accounts are the ones that are the most commonly held by low-income households (Chart 2).
When you buy something on credit, you take possession of your purchase now and pay for it in the future. At its heart, credit is based on trust – the lender trusts your ability and intent to pay. Your credit history shows how you’ve handled credit in the past, and suggests how well lenders can trust your ability and intent to pay in the future.
Credit allows you to buy something, such as a new washer, a car, or even a house, while promising to pay for it from future earnings. Credit can also give you access to cash in an emergency, and enable you to consolidate debt to better manage your finances.
Two thirds of United States households had credit cards by the end of 1998. More than half of credit card holders actually revolve debt on their cards,while nearly half of card holders declare that they do not usually pay off their credit card balance. Half of those who revolve debt actually declare themselves as systematic debt revolvers and have at the same time liquid financial assets of at least $500 and no less than one-half of total monthly income. The actual size of liquid assets among households in this group makes it unlikely that this co-existence can be attributed simply to a motive for holding transactions balances. Median liquid financial assets, excluding cash holdings, are $4850 for all such households, while their median credit card debt is $1900 and the median credit card interest rate on their card with the highest balance is equal to 15 percent. Failing to arbitrage between the high credit card interest rates and the low rates on their liquid assets is costly. Despite these pronounced tendencies to revolve credit card debt, by the time they are included in the 50 to 59 age range United States households manage to attain median ratios of total wealth (net of credit card debt, mortgages,and education loans) to annual total after-tax income of the order of 3.5. The surprising portfolio co-existence of high-interest credit card debt, low-interest liquid asset holdings, and substantial accumulation of assets for retirement is a challenge for the modern theory of saving and the focus of this paper.
Gross and Souleles (2002) used a unique, proprietary panel data set of thousands of individual credit card accounts from several different card issuers and identified two co-existence puzzles: one refers to the co-existence of credit card debt with illiquid assets, and the other to the co-existence of credit card debt with liquid assets. Two subsequent papers, namely Laibson,Repetto and Tobacman (2000) and Bertaut and Haliassos (2002), proposed explanations for these puzzles that were based on self-control considerations.
When Nick bought his guitar, he saved the money to buy it. He could also have borrowed the money from his Mum and Dad… but then that wouldn’t be Nick!Once you’re 18 you have other options if you’re buying something and don’t have the cash at hand – you can use credit. Credit means someone is willing to lend you money–called principal – in exchange for your promise to pay it back, usually with interest. Interest is the amount you pay to use someone else’s money. When you use credit you go into debt.
There are many different ways to obtain credit – credit cards, loans and mortgages. The different types are designed for different needs, but they all follow the same basic pattern: buy what you want now, and pay for it later. It sounds like a good deal, but there is a catch!Yep, you’ve got to pay for using credit – it’s not money for nothing.
A credit score is a number which is assigned to you, generated by the credit bureaus by reviewing your past credit history. It helps the lenders in determining whether you have the financial strength to return the money within the given time period. In a nut shell it is like a synopsis of your credit worthiness.
Credit score is the most important aspect that determines your financial future. Carrying a good credit score is an asset and can assure you of a secured financial future. On the other hand a bad credit score will result in higher cost when you need to borrow money. "There isn’t much anyone can do for those who will not do something for themselves." The same is applicable for credit scores. Your prime aim is to maintain a good credit score and lead a financially planned life.
Credit card debt is widespread. U.S. households with at least one credit card report carrying, on average, $3,027 in revolving debt (based on the 2004 Survey of Consumer Finances). There is, however, signi cant heterogeneity in credit card borrowing. Only 45 percent of card holders report that they, at least sometimes, carry balances on their credit cards. Among these individuals, average credit card debt is $5,799. These gures illustrate two important stylized facts of credit card debt: rst, the level of card borrowing is substantial (and likely much higher than these self-reported gures suggest, as discussed below); and, second, some individuals charge their credit cards signi cantly while others accumulate no debt at all.
This paper tests whether heterogeneity in individual time preferences correlates with credit card borrowing. In a large eld study, we measure individual time preferences using incentivized choice experiments and link resulting impatience measures to administrative data on borrowing. In particular, we investigate whether individuals who exhibit present-biased preferences, that is those who show a particular desire for immediate consumption, have higher credit card balances.
The advent of microfinance lending in the last two decades has been hailed as a key development in the fight against poverty. The New York Times (1997) editorial page, for example, has promoted microfinance as “a much-needed revolution” and “the world’s hot idea for reducing poverty,” and the United Nations General Assembly recognized the trend by marking 2005 as the International Year of Microcredit. Microfinance involves new banking institutions that work in poor communities, aiming to achieve both financial viability and transformational social impacts. New credit contracts have led to surprisingly high loan repayment rates (most established microlenders can claim repayment rates well above 95 percent), and economists have focused on the way that the contracts mitigate adverse selection and moral hazard, problems that undermined alternative attempts to lend to poor households without collateral (e.g., Stiglitz, 1990;Laffont and Rey, 2003; Rai and Sjöström, 2003).
But high repayment rates are insufficient to drive a revolution. The key to the expansion of microfinance globally, it is argued, depends on the success of microfinance as a commercial phenomenon, free from subsidy (Drake and Rhyne, 2002; Robinson,2001). The promise hinges as much (or more) on the ability to contain costs and to price loans at interest rates that are high enough to generate profits. Once profitability is in hand, microlenders can expand globally with minimal external support. The logic of this part of the microfinance revolution is built on the idea that poor households are willing and able to pay interest rates for loans that fully cover the costs of lenders. A corollary of this logic is that the poorest borrowers, who also tend to be the most expensive to serve, will pay the highest prices for capital.
It has been nearly two decades since the credit card industry was deregulated with the promise of bringing greater competition and lower prices to consumers.In addition,technological advancements in underwriting, commonly referred to as risk-based pricing,have widened the market for credit cards to lower- and moderate-income consumers.The result: In 2004, 35 percent of households with incomes below $10,000 had credit cards, while more than half of households with incomes between $10,000 and $24,999 had credit cards.
While much is made of this democratization of credit, there is less public awareness and consumer knowledge about how the cost of credit varies across different segments of the population. Last year alone, households received nearly 8 billion credit card solicitations in their mailboxes.2 Often these solicitations promise teaser rates of 0 percent, or they might dangle the carrot of airline miles or cash-back rewards.
This guidebook provides travel agents with the information they need to make informed decisions regarding credit card acceptance. Today, transactions take place, predominately, via the phone, e-mail or Internet. The processes for accepting credit cards also varies according to situation. When accepting credit cards it is strongly recommended that the travel agent confirm that the card is valid and active, that the cardholder identity can be authenticated, and that the transaction is legitimate.
A rising portion of travel sales are conducted with customers in a non face-to-face environment. Because of this, the risk of accepting credit card transactions that are later identified as fraud has increased. In an attempt to remain competitive, and in a market where customers expect to purchase travel from the comfort of their home, travel agents often accept credit card payment from first-time customers with very little identifying information. By supporting this type of distribution, travel agents take the risk that customers are perpetrating fraud, so weigh the pros and cons.
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