Credit is money that you borrow from a bank, store, or credit card company to pay for things you buy. You repay the money later. Some department stores also offer credit cards. A loan is another type of credit. A loan is money you borrow from the bank to buy something special, like a car. You pay it back in monthly payments. You also pay the bank interest, a charge for borrowing money.

Andy recently got a credit card in the mail and used it to buy a pair of jeans. A month later, Andy got a bill from the credit card company for $70. However, the bill said the minimum payment was only $10. Andy sent the minimum payment and would pay the other $60 later. The next month, the credit card company sent Andy a second bill. It was for $60.90. The extra $.90 was for interest. The minimum payment on the second bill was still $10, so Andy paid that. Andy thought his next bill would be for $50.90. But it was for $51.66. The credit card company was adding more interest every month!

Credit Card Costs

Credit card companies are in business to make money. Compare these fees from different company offers before you make any decision. There are 3 general fees that credit companies will charge:

Annual Fee: This is a fee you pay the credit card company every year to use its card. Not all credit card companies charge an annual fee. Find out which companies don’t charge an annual fee.

Interest: Credit card companies make most of their money by charging interest. The companies hope you will not pay your entire bill every month and charge them interest on the rest of their bill. The interest can be as low as 5.9 percent or as high as 19 percent. You can save money by looking for a credit card with a low interest rate.

Late Fees: Many credit card companies also charge late fees. This happens when you do not send the minimum payment to the company. Credit card companies can charge from $10 to $20.

Buying a Car

Make sure you really need a car before deciding to buy a car. A used car might be a better buy because it will cost less than a new car. Make sure the car you have chosen is dependable by having an experienced mechanic look it over if possible. You can also do some research on the make and model of the car. Magazines such as Consumer Reports will rate the dependability of new and used cars. The website for the Kelly Blue Book (www.kbb.com) will give you an estimated value of a car to make sure you are getting a good deal.

Here are some additional expenses you should know about before making a decision:

Auto Insurance: State law states for every car to have at least liability insurance. You will need to present proof of insurance every year when you renew the license registration. The amount you pay mostly depends on your driving history and type of car you drive.

Registration Fees: Yearly registration fees to update stickers for license plates. The amount you pay depend on the value of the car.

Smog Check: If you buy a used car, you will need to take the car to a certified mechanic for Smog Check. This check up will see if the car’s emission is safe for the environment. You might need to fix certain auto parts if the car does not pass the Smog. Ask the seller if they are willing to pay for a smog.

Requesting a loan to buy a more expensive car is like requesting credit. You will also need to have a down payment (Approximately 20% of car’s value) and set up a 3 to 5 year payment plan.