PERSONAL FINANCIAL PLANNING

LOVELY PROFESSIONALUNIVERSITY
ASSIGNMENT-3

PERSONAL FINANCIAL PLANNING

Submitted to: Submitted by:

Mr. Lovey aggarwal Name: Harsukhsimran

Roll No. : B 59

Reg. No.: 10900914

PERSONAL FINANCIAL PLANNING
Section: RT1901

PART -A

CREDIT

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.
PERSONAL FINANCIAL PLANNING

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 Loans
 

  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.
PERSONAL FINANCIAL PLANNING
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

 Need a Credit Card to Build Credit

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.

 I Need a Credit Card for Emergencies

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.

 I Need a Credit Card to Save Money on My Purchases

PERSONAL FINANCIAL PLANNING
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.

 I Need a Credit Card to Earn Rewards

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.

PART-B

CREDIT CARD

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
PERSONAL FINANCIAL PLANNING
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
 Gold Credit Cards
 Commercial Cards
 Others

Visa

World

Woman’s Gold credit card

Student credit card

Travel credit card

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.
PERSONAL FINANCIAL PLANNING
 

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 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
Opening 1.435% 18.9%
Cash Transactions: 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.
PERSONAL FINANCIAL PLANNING
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
Credit card may be 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, cash back credit card/ rewards credit card maybe the best option for you.
Most cash back credit cards typically provide between 0.5% to 1.5% cash back. This is
usually based on tiered level of spending on the card, i.e. the more you spend greater the
percentage of cash back. 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 cash
back 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?
PERSONAL FINANCIAL PLANNING
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.
 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

PERSONAL FINANCIAL PLANNING
Annual fee Basic card 2000 1000
Annual fee (Supplementary 750 500
card)
Renewal fee Basic card 2000 1000
Late payment penalty 300 200
Grace period(1-2 months)

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.

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

Lassic Credit Cards

Premier Credit Cards

Gold Credit Cards

Advance platinum Credit Card

PERSONAL FINANCIAL PLANNING
Features:

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

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

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

CITY BANK

Types of credit cards provided by city bank:

 Emirates-Citibank Credit Card

 Gold Credit Card

 Silver Credit Card

Features:

 Interest: 2.59% – 2.69% (gold)

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

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

PERSONAL FINANCIAL PLANNING

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.

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.
PERSONAL FINANCIAL PLANNING

References
GOOGLE.COM
SCRIBD
http://en.wikipedia.org/wiki/Credit_card
http://www.online.citibank.co.in/portal/newgen/seo/cards/credit-cards.htm
http://www.icicibank.com/Personal-Banking/cards/Consumer-Cards/Credit-
Card/personal-banking credit-cards.html
http://www.hsbc.co.in/1/2/personal/credit-cards
http://www.apnaloan.com/credit-card-india/
http://www.economywatch.com/india-credit-cards/