Read Aloud
Listen to the content using your browser's built-in voice.
Read Aloud is not supported in this browser.
Credit Card
KRED-it kahrd
A credit card allows cardholders to borrow funds to pay for goods and services. The borrowed funds must be repaid, either in full by the payment due date or over time with interest, depending on the terms of the cardholder agreement.
Naman has a credit card with a ₹1,00,000 credit limit. He went to a store and purchased a TV for ₹40,000 using the credit card. The store charges his credit card ₹40,000, reducing the available credit to ₹60,000.
At the end of the billing cycle, he receives a statement from the credit card company showing that he owes ₹40,000. The statement will list a due date (e.g., 25 days from the statement date) and a minimum payment (e.g., ₹4,000) that he needs to pay to avoid late fees.
He can either:
- Pay the full ₹40,000 by the due date, which means he won’t have to pay any interest.
- Pay the minimum ₹4,000. The remaining ₹36,000 will carry over to the next billing cycle, and interest will be charged on the unpaid balance. If he decides to pay only ₹4,000 the credit card company may charge an annual interest rate of 20%. This means the remaining ₹36,000 will start accumulating interest daily until it is paid off.
The first modern credit card that resembles today’s credit cards was introduced in 1950 by Diners Club. It was a charge card that allowed customers to charge meals at various restaurants in New York. The cardholders had to pay the full balance at the end of each billing cycle.
Definition
A credit card allows cardholders to borrow funds to pay for goods and services. The borrowed funds must be repaid, either in full by the payment due date or over time with interest, depending on the terms of the cardholder agreement.
Case Study
Naman has a credit card with a ₹1,00,000 credit limit. He went to a store and purchased a TV for ₹40,000 using the credit card. The store charges his credit card ₹40,000, reducing the available credit to ₹60,000.
At the end of the billing cycle, he receives a statement from the credit card company showing that he owes ₹40,000. The statement will list a due date (e.g., 25 days from the statement date) and a minimum payment (e.g., ₹4,000) that he needs to pay to avoid late fees.
He can either:
- Pay the full ₹40,000 by the due date, which means he won’t have to pay any interest.
- Pay the minimum ₹4,000. The remaining ₹36,000 will carry over to the next billing cycle, and interest will be charged on the unpaid balance. If he decides to pay only ₹4,000 the credit card company may charge an annual interest rate of 20%. This means the remaining ₹36,000 will start accumulating interest daily until it is paid off.
Historical Reference
The first modern credit card that resembles today’s credit cards was introduced in 1950 by Diners Club. It was a charge card that allowed customers to charge meals at various restaurants in New York. The cardholders had to pay the full balance at the end of each billing cycle.