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Credit literacy

ATTENTION! From 20 June, 2018, the credit market will operate according to new rules. The banks will not be able to indicate interest rate without showing additional commissions, fees and sanctions in their advertisements.

“All credit interest and fees for other credit-related lender’s services will be included in the calculation of effective rate. This requirement will apply only when advertising materials contain any data (figures) concerning customer’s expenses”, as indicated in the explanatory note to the law No. 2455.

Previously debtors had to cover penalties and interest first; as a result the principal amount of the credit remained practically the same. After the law comes into force, the amount of the overdue debt will be covered first, then the principal amount of the credit, and only after that the penalties will be covered.

What are the advantages and disadvantages of consumer credit?

A consumer credit is provided for purchasing consumer goods. This credit can be obtained not only for buying such goods as an apartment, a car or furniture but also for small purchases (e.g. cell phones, food, appliances). The credit may be in the form of bank advance for consumer’s needs or in the form of sale with payment on a deferred basis.

Additional commissions and fees are associated with the consumer credit; they increase the real cost of the credit and form a hidden interest. Therefore, one may lose when choosing a credit from different banks based on interest rate. The calculation of true interest cost should be considered first.

According to the law each bank has to disclose the true interest cost for the credits it provides, including additional commissions and fees. That is what protects the clients’ interests. Before signing an agreement, the client has to obtain all the information on payments under the credit agreement, deadlines for payments and amounts of commissions. This will assist him/her in assessing his/her financial abilities to make a credit purchase.

Deferred payment is one of consumer credit’s types. In this case the interest-bearing debt is partly covered by the discount provided by the selling company.

Nowadays the requirements to credited parties are getting less strict. For example, there are internet stores offering online credits.

Let's examine the advantages and disadvantages of the consumer credit.

Theadvantagesinclude:

the goods may become more expensive in future;

the goods may disappear from the stores;

it is possible to buy goods with necessary modifications on the spot;

it is possible to buy goods when it is desirable for the customer;

it is possible to pay for the goods in small instalments during a number of months or years.

Thedisadvantagesinclude:

the price of the goods increases due to the credit interest;

the initial enjoyment of buying is gone and the credit payments have to be made for several months or years (the biggest psychological minus side of credit purchasing);

a huge risk of paying to the bank an amount much higher than it appears at the beginning (in our country banks often conceal the real interest).

Partner of our association is “Hroshi vsim” .

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