Credit and loan

Credit will allow you to make large purchases.  Credit can also be very useful in dealing with emergencies, like unexpected car repairs.  It can sometimes be more convenient than cash.  These are all good reasons to have credit.  But remember, credit isn't exactly like having extra money. Credit is a loan.  A loan is an agreement you make with your bank.  The bank gives you money to make that purchase, and in return, you promise the bank in writing that you will pay back all the money you borrowed, plus interest.  Interest is the extra amount of money that the bank charges you for lending you money.  When you take out a loan, you agree to pay back the loan amount and the interest on a regular schedule.

For example, your schedule for paying back a $2500 loan may mean that you have to pay $235 to the bank on the first day of every month for the next 12 months. The interest you owe on the original amount borrowed is included in your monthly payments.

Most loans will require you to offer the bank some form of collateral.  Collateral is property that you promise to give to the bank if you do not pay back the loan such as home, automobile, savings account. Most banks will only accept items that they can easily sell to pay off the loan. Some loans, like a credit card account, do not require collateral.

When you are applying for loan, it's also important to remember that your loan is going to cost you more money than just the price of the items you're buying.  So you need to consider the cost of your loan when you're deciding which loan to apply for.  There are two costs you will have to pay; interest and fees.