Limit

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Limit

Meaning:

A limit is defined as the maximum amount that a person can spend, withdraw, or borrow from a credit card, bank account, or lending facility.

Types :

Credit Limit:

The maximum borrowing allowed on a credit card or through an overdraft facility.

Debit Limit:

The maximum amount that can be withdrawn or transferred from a bank account.

Importance in Finance:

Limits are essential for preventing overspending, helping individuals manage their finances responsibly.

They assist banks in managing risk and can significantly influence an individual's credit score.

Good Financial Practice:

Maintaining credit usage below 30 percent of the limit is a recommended practice to help ensure a strong credit score.

Role in Business:

Businesses are assigned credit limits to enable them to purchase goods, manage inventory, and maintain smooth cash flow, particularly during shortages.