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PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING LOVELY PROFESSIONALUNIVERSITY ASSIGNMENT-3 PERSONAL FINANCIAL PLANNING Submitted to : Mr.
PERSONAL FINANCIAL PLANNING LOVELY PROFESSIONALUNIVERSITY ASSIGNMENT-3 PERSONAL FINANCIAL PLANNING Submitted to : Mr.

LOVELY PROFESSIONALUNIVERSITY

ASSIGNMENT-3

PERSONAL FINANCIAL PLANNING

Submitted to:

Mr. Bhavdeep S kochar

Submitted by:

Name : SONU KUMAR

Roll No. : A22

Reg. No.: 10905481

Section: RT1903

PERSONAL FINANCIAL PLANNING

CREDIT

PART -A

PERSONAL FINANCIAL PLANNING CREDIT PART -A A contractual agreement in which a borrower receives something of

A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. When a consumer purchases something using a credit card, they are buying on credit (receiving the item at that time, and paying back the credit card company month by month). Any time when an individual finances something with a loan (such as an automobile or a house). The contractual amount of credit instruments represents the maximum undiscounted potential credit risk if the counterparty does not perform according to the terms of the contract, before possible recoveries under recourse and collateral provisions. A large majority of these commitments expire without being drawn upon. The credit instruments are issued by the lenders only to those parties that are creditworthy. Credit risk for other credit instruments using the same credit risk process that is applied to loans and other credit assets. The terms of a standardized loan are formally presented (usually in writing) to each party in the transaction before any money or property changes hands. If a lender requires any collateral, this will be stipulated in the loan documents as well. Most loans also have legal stipulations regarding the maximum amount of interest that can be charged, as well as other covenants such as the length of time before repayment is required. Some credit instruments like credit derivatives are used for the risk mitigation purposes. These instruments help the lending firm to manage the credit risk associated with borrower.

VARIOUS CREDIT SOURCE

There are many different types of credit sources that are available for people who want to finance purchases of all kinds. Here are some ways that you can borrow money, depending on needs and credit history.

PERSONAL FINANCIAL PLANNING

Personal Loans

PERSONAL FINANCIAL PLANNING  Personal Loans Personal loans are loans given by a bank or financial

Personal loans are loans given by a bank or financial institution in order to make a large purchase or to consolidate other debt. Many people use personal loans to pay for cars. You get the money as a lump sum, and you cannot borrow additional amounts on the same loan. Your payment, including interest, is the same each month, and there is a set time that the loan will be paid off. With most personal loans, you are able to pay more than your monthly payment in order to pay the loan off more quickly.

Mortgages

A mortgage is usually a large amount of money loaned by a bank or mortgage company in order to purchase a house or other property. Like a personal loan, the monthly payment includes interest. Many mortgages also include homeowners’ insurance and taxes for the property that you are buying. Fixed rate mortgages keep the same interest rate throughout the life of the loan (usually 15, 20, or 30 years), while adjustable rate mortgages fluctuate. Some mortgages are fixed for a certain amount of time and then change into an adjustable rate after that time period.

Payday Loans

Payday loans are available to most people, even those with bad credit. In this type of loan, the amount borrowed is usually fairly small, and is only enough to get the borrower through until his or her next payday, when they must pay the loan back. The interest rates are normally much higher than other kinds of loans, and these should only be used in the case of an emergency, if at all.

You should choose the type of loan or credit that you apply for carefully, taking in to consideration what you are purchasing, how much expendable money you have each month, and what interest rate is being offered to you. You can speak to a bank representative or credit counselor to find the right type of credit for your needs.

FINANCIAL NEED OF INDIVIDUAL

PERSONAL FINANCIAL PLANNING

FINANCIAL PLANNING  Need a Credit Card to Build Credit You build credit by paying your

You build credit by paying your bills on time. You can build enough credit to qualify for a home loan by paying your rent on time for several years. You destroy your credit when you do not pay your bills on time. The utility companies and other businesses can send you to a collection agency if you do not pay on time. You do not need a credit card to build your credit history. You may find it a little easier to do with a credit card, but you should be very careful as you try to do so.

I Need a Credit Card to Shop Online or Rent a Car

Since debit cards have been introduced you no longer need a credit card to do these things. In fact you can do everything with a debit card that you can with a credit card, except spend money that you do not have. You should not be doing that anyway. Debit cards can be used anywhere a credit card can. This completely debunks the statement that you need one to rent a car.

If you plan well you should set up an emergency fund for emergencies. Your emergency fund should have at least $1000.00 in it, but you should try to have three to six months of expenses saved up. This much money should be able to handle any emergency that comes your way. If you are stranded on the road and need to be towed you can use your debit card to pay for the tow, and your emergency fund to cover those expenses.

Many stores will offer discounts for having a store credit card. Stores do not offer cards to give you discounts; they offer cards because they realize that while most people intend to pay the card off every month, few actually do. They make more back on interest than they the discount they offer to you.

PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING This is a dangerous game to play. If you are responsible and pay

This is a dangerous game to play. If you are responsible and pay off your balance in full each

month, you may consider having a rewards credit card. You should make sure that you have a

credit card with no annual fee. Additionally it is important to remember that the credit card

offers its rewards, because the company realizes that most people are not going to pay off

their credit cards in full each month. This means that they make more money off the

customers, then rewards they give out.

CREDIT CARD

PART-B

Credit card users are billed on a monthly basis and are expected to pay at least the minimum payment. Any unpaid balances will be subject to interest charges. Purchases with credit cards are just like purchases with cash, except that with credit cards payment can be delayed for a short time.

A credit card is a payment card that involves a line of credit that is issued to the cardholder. A

cardholder is provided with the ability to pay a merchant (goods and services providers) if

cash is unavailable. The amount of the purchase becomes the cardholder’s debt to the credit

card issuer. Also keep in mind, whatever one might need or want in a credit card may not be

the same as what someone else needs.

A credit card is different from a charge card, where a charge card requires the balance to be

paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their

balance, at the cost of having interest charged. Most credit cards are issued by local banks or

credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This

is defined as 85.60 × 53.98 mm in size.

Type of credit cards:-

Premium Credit Cards

Titanium Card

PERSONAL FINANCIAL PLANNING

Gold Credit Cards

Commercial Cards

Others

Visa

World

Woman’s Gold credit card

Student credit card

Travel credit card

Gold credit card Student credit card Travel credit card COMPARISION OF VARIOUS CREDIT CARDS (Related to

COMPARISION OF VARIOUS CREDIT CARDS

(Related to APR, Annual fee, Grace period and other fees.)

Credit and Charge Cards

Although many people use the terms inter changeably, credit cards and charge cards are really two different things. You can make purchases with both whenever you desire, and you need to be approved for both. The difference lies in the way that payments are calculated.

Charge cards (American Express is one example) must be paid off each month. We can charge whatever amount you want, but you do not have the option to only pay part of the bill; you must pay the whole balance when the payment is due.

With credit cards (MasterCard and Visa, for example), you have the option of either paying them off each month, paying only the minimum amount due, or paying an amount in between the minimum amount due and the entire balance. You will be charged interest on the amount that you don’t pay off each month.

Department store cards are similar to regular credit cards, in that you may choose to pay or not pay the entire balance each month, but they tend to have higher interest rates. If you do

PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING not qualify for a major credit card, you might have better luck applying

not qualify for a major credit card, you might have better luck applying for a department store credit card. These cards can normally only be used at the store that they are issued from. Credit Card charges (Average)

APR:

Typical 18.9% APR (variable)

Other interest Rates:

Introductory/Promotional rate Monthly rate Annual rate

Purchases:

0% for 3 months 1.435% 18.9%

Balance Transfers:

0% for 12 months from date of account

Cash Transactions:

Opening 1.435% 18.9% N/A 2.045% 27.9%

Interest free period:

Maximum of 56 days for Purchases if you pay your balance in full and on time.

Right Credit Card for any individual With so many credit cards to choose from its crucial you think about how you intend to use the card. The questions below should help you figure out what type of credit card is best for situation, but finding the best card is a fairly complicated process. Use our savings calculator on the compare page to find the credit card that is right for you. Frequently people ask us which the best credit card is. There is no simple answer as it depends on- how you intend to use it, and your current and future financial situation. It is also unlikely that any one card would be best for you in all scenarios, so you should consider getting more than one credit card. According to APACS (a UK payments association), in 2007 average number of cards per person was 2.4. Per APACS, there are over 1500 different credit cards available in the UK market, so before deciding on which of these cards is best for you, you should answer the following questions as it will help you narrow down the list.

Do you have a large unpaid balance on your current credit cards?

If you do then, depending on the size of your balance, a balance transfer

PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING credit card maybe the best option for you. You will have to look

credit card maybe the best option for you. You will have to look at the promotional rate on balance transfers and duration of this promotion. For example if you expect to payoff the balance in a year you should look for balance transfer cards with low interest on balance transfers up to 12 or 15months. If you have good credit rating several credit cards with 0% balance transfer rates for 6 months to a year are available. Make sure to look at the balance transfer fees the average is around 2.5%-3%. There are some cards that waive this balance transfer fee for a promotional period.

Do you currently pay for your purchases with cash/ don't use a credit

card/ pay off your credit card balance in full each month? If you do then, a cashback credit card/ rewards credit card maybe the best option for you.Most cashback credit cards typically provide between 0.5% to 1.5% cashback.This is usually based on tiered level of spending on the card, i.e. the more you spend greater the percentage of cashback. Some cards also have a higher promotional rate for first 3-6 months. So if you are planning on making some big purchases, it might be ideal time to get a cashback credit card. It is important to make sure you pay off the monthly balance in full and in time. Consider setting up a direct debit from your bank accounts to avoid late fees/ interest charges. If you travel frequently/ shop frequently at certain retail stores you should consider reward credit cards from the travel providers/ retailers. Most have different point schemes (1 point/mile per £1 to 10 points per £1 spend. The value of these points differs so it is harder to do apples to apples comparison. Ideally you want to choose the card that provides a benefit value of 1% or higher of the spend otherwise a cash back card is a better option.

Do you anticipate making big purchases in the next couple of months and repaying the balance over the next 6 to 12 months? If you do then, a purchase credit card maybe the best option for you. Most purchase credit cards have 0% rate on new purchases for 6-9 months and then the interest rate increases. Depending on how soon you expect to pay off the purchases you should get a card that gives you the longest duration for the 0% rate or the one with the lowest APR after the introductory period. With these cards you should be proactive and change the cards if you are unable to pay off the balances before end of the introductory interest rates.

PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING  Are you not sure about how much you would charge on the

Are you not sure about how much you would charge on the credit card

and need flexibility in repaying the balance or don't want to worry about changing cards frequently? If you answered yes then a Low APR credit card maybe the best option for you. Typically these cards offer a low rate - 6% to 10 %( not an introductory 0% rate) for the long term. Most of these rates are still variable i.e. not guaranteed to stay the same, but usually these rates don't change much, so it means you don't have to look for a new card when you run into financial difficulties or every 9 to 12 months. Hopefully the above helps you figure out which type of credit card suits your situation the best. However with the different rates (introductory, balance

transfer, typical Apr's), fees, incentives etc. finding the best card is a fairly complicated process. We have built calculators that will to help you identify the right card.

EXAMPLE:- CITY BANK

FEE AND CHARGE

GOLD

CLASSIC

Annual fee Basic card Annual fee (Supplementary card) Renewal fee Basic card Late payment penalty Grace period(1-2 months)

2000

1000

750

500

2000

1000

300

200

Hsbc Bank Middle East Limited

In Bahrain, the HSBC Group is represented by HSBC Bank Middle East Limited, the largest and most widely represented international Bank in the Middle East.

PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING A principal member of the HSBC Group since 1959, the Bank's unique relationship

A principal member of the HSBC Group since 1959, the Bank's unique relationship with the Middle East dates back more than a century. Founded in London in 1889, it pioneered banking in the region and for decades was the only bank committed to supporting the area.

Today HSBC provides a wide range of banking services for both corporate and individual customers.

Types of credit cards provide by HSBC:

C

lassic Credit Cards

P

remier Credit Cards

G

old Credit Cards

A

dvance platinum Credit Card

Features:

I

nterest: 1.75 2.25% (depending on card, 4 types offered)

M

inimum Payments: 5% or 10 B.D. (whichever higher)

A

nnual Charges: 20 B.D. (classic) 30 B.D. (gold)

PERSONAL FINANCIAL PLANNING

CITY BANK

Types of credit cards provided by citibank:

Emirates-Citibank Credit Card

Gold Credit Card

Silver Credit Card

Features:

Interest: 2.59% 2.69% (gold)

Card Features :  Interest: 2.59% – 2.69% (gold)  Minimum Payments: 2.77% or 10 B.D.

Minimum Payments: 2.77% or 10 B.D. (whichever higher)

Annual Charges: 25 B.D. 50 B.D. Gold

USE OF CREDIT CARDS

Always remember that every time you use your credit card, you are taking a loan.

Avoid cash advances. Cash advances carry higher fees, some cards charge higher interest rates and there is no grace period for a cash advance.

Avoid convenience checks. These are actually the same as cash advances and the interest rates and fees inflicted can be outrageous.

Avoid carrying to many cards. The maximum amount of credit cards you can carry are only three, try not to carry more than that because too much available credit can and will hurt your credit score just as bad as having bad credit. A lender may view to much available credit as a potential risky and your future ability to repay the available credit.

Avoid department store or gas cards. These cards carry extremely high interest rates and can be detrimental to your credit score. Remember that all stores take Visa or MasterCard.

PERSONAL FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING Avoid charging more than 50% of your available credit. This keeps you from

Avoid charging more than 50% of your available credit. This keeps you from going over the limit as well as keeps your debt ratio low as well.

Avoid going over the limit because the added fees and interest can add up rapidly and it also hurts your credit score.

Always remember to pay your bill in full each month. This is the smartest financial move you can make, this is because you can save on interest charges and can help you to improve your credit score.

END