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Credit Card Networks. In order to function, every credit card has to have a supporting system of technology that electronically processes and records the purchases made with the card. Several different companies offer that technology. These companies are called credit card networks . They don’t lend any money — they just make the card work. The most notable credit card networks are Visa and Master Card . When choosing a credit card provider, be sure to know what network they use. If you travel abroad frequently you want to be sure that the network a prospective credit card provider uses is accepted in your destination country. Compare Line of Credit. Another type of loan that banks and other lenders offer is called a line of credit , which is revolving account with a variable interest rate . Borrowers can draw on the line of credit if and when they need money. Lines of credit differ from credit cards in a few ways. One is that they are harder to qualify for . Also, they have no grace period , which you’ll learn more about below. Interest starts being charged as soon as the line is drawn on. Interest rates tend to be lower than credit card rates. Lines of credit can be unsecured or secured by, for example, the borrower’s home or business equipment. The loan funds are accessed by check, not by plastic card. Many businesses have lines of credit to cover expenses when there is a temporary drop in revenue, or to fund large purchases. Reflect on Learning: Whenever you use a credit card, you have borrowed money which has to be repaid. What's the difference between a credit card and a charge card? Answer: A credit card permits the borrower to carry over a balance; a charge card does not. What is the difference between a line of credit a credit card? Answer: A line of credit is a loan that is harder to qualify for and has a much lower rate of interest, and is popular with businesses. PRODUCT PREVIEW II. The Credit Card APR The Credit Card Disclosure Statement Annual Percentage Rate(s). Credit cards charge interest. Although interest rates vary among credit cards, on average they are much higher than interest rates on other types of loans like car loans, mortgages, or lines of credit. In 2014, the average credit card had an interest rate of about 15% . In credit card lingo, the interest rate is called the Annual Percentage Rate (APR) . Here’s something you need to understand about credit cards: Different APRs apply to different uses of the credit card. For example, if you use a credit card to buy things like restaurant meals, or to travel or pay bills, you are charged the purchase APR , which is usually about 15%. Many people believe that the purchase APR is the only APR on a credit card. Not so. If you use the credit card to get cash at a bank or ATM, which is called a cash advance , you are charged an APR much higher than the purchase APR. If you transfer a balance from one credit card to another, called a balance transfer , a balance transfer APR applies. Often this is much lower than the purchase or cash advance APRs, but bumps up to the purchase APR after a period of time. Also, if a payment is late, a penalty APR may kick in, which is several points higher than the purchase APR. Fees. Here’s another thing that’s good to know about credit cards to help keep them under control: In addition to interest , most credit cards charge fees . For example, some credit card companies charge an annual fee just Early Tech Memorabilia A tattered 3-3/8-inch- by-2-1/8-inch brown paper card, a prototype of the modern magnetic strip credit card, sold at auction in 2012 for $23,750. Fin Lit Trivia Fin Lit Trivia Fin Lit
Chapter 13 | Credit Card Craze 242
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