Analyzing the cost of Open-end Credit

Bank, department store, gasoline, home equity lines and checking accounts with overdraft protection are examples of open-end credit. Open-end credit can be used again and again until the limit in which you can borrow has been reached.



The truth in lending law requires that creditors that offer lines of credit disclose the terms and APR of the credit plan so that you can shop an compare all the cost involved.



When looking for an open-ended line of credit, the APR they tell you only represents a periodic rate figured on a yearly basis. Annual membership fees, transaction charges, and points are listed separately and not included in the APR. When you are comparing plans, you have to take all of this into consideration.



The lenders must tell you when finance charges are due to begin on your account so that you are aware of how much time you have to pay the bill before incurring any charges. They should also give you a grace period of 25 days to allow you to pay the balance in full without incurring a finance charge.



You should also be told of the method that is used to figure the balance on which you pay a finance charge. A number of different methods are used to determine the balance. It is important that you study the math behind your finance charge.



Some may take the amount owed at the start of the billing cycle and subtract payments made during that cycle. The purchases made are not counted, and thus this method is called the adjusted balance method.



Others may use the amount owed at the start of the billing cycle to come up with the finance charge.



Sometimes creditors may use the average daily balance method where you balances for each day in the billing cycle are added then divided by the total number of days in the cycle. The payments that are made during the cycle are subtracted in the arriving at daily amounts. Depending on the plan, new purchases may or may not be included.



You should be aware that the finance charges may differ considerably depending on the method used.



When you receive a credit card offer or an application for some type of credit, the lender must give information about the APR and other important terms of the plan. Also, a home equity loan, must have the required information included with the application.



The truth in lending law does not set rates, or rules as to how to calculate finance charges, it only requires that the method used to calculate finance charges be told.



For more information on pain free loans and credit, visit LoanSpotLight.net