Question

Instalment loans require the periodic payment of principal and interest. In most cases, a customer borrows to purchase durable goods or cover extraordinary expenses and agrees to repay the loan in monthly instalments. Explain the following types of instalment loans in terms of their features and their risks:
5. 1. Credit cards
5. 2. Smart card
5. 3. Mortgage loans

Answer 1

Solution : 5.1

Credit Card

• Credit card is kind of Plastic money, There are many use of credit cards for Loan purpose and make records of your Purchase.
• Many Retailers gives discount on their products if the Customer is paying bill via Credit Card.
• People who has not Enough money for any transaction right now can buy Product using Credit card and pay it Later.
• If anyone is making a big-ticket purchase , he can easily convert it to monthly instalments with charge of interest for conversion to EMIs.
• Credit cards are safer than debit cards as in case of fraud you are not out of money immediate.
• There is Different types of credit cards depending upon their usage.

• Some time People use or pay the money using credit card and failed to repay which cost to merchant.
• If Payment is not done at time the Credit of that person getting down.
• Late payments of credit card leads difficulty in getting loans in futures.

Smart Cards

• We can withdraw rupees at any time from ATM as per our requirements.It is available across all the country.
• It is useful in the payments of pour shopping and we can availed the benefit of discount given by Merchants.
• the risk is that it is not that much secure than the credit card as in case of lost of smart card we can loose the money immediately .
• there is limit in withdrawal of cash from smart card.

Mortgage loans

• In a mortgage Loan, you have to pledge securities for the repayment of your loan. They agrees to hold the title of security until you have paid back loan plus interest. If you make default in repay your mortgage loan, the lender has the right to take possession of security and sell it.
• They are types of mortgage loan. i.e. fixed rate mortgage, Adjustable rate mortgage etc..
• There are three risks involved in mortgage loan i.e. Interest Risk, Default risk, Prepayment risk.
• In case of Repayment default in loan, you can loose your Security. the opposition party has right to sell it and recover their money and interest.