CLASSES AND KINDS OF CREDIT
personal credit
mercantile credit
bank credit
industrial credit
agricultural credi
investment credit
export credit
public or government credit.
kind of personal or consumer credit.
Charge Account is one kind of personal or consumer credit.
It is the oldest form of sales or purchase credit.
-Other names of this type credit are
open-book credit
the open charge account
30-day credit.
Individual credit has, through the centuries, been a very outstanding one because no one in his life
knows for certain when an emergency or an opportunity will force him into using credit.
Most personal credit is used by individuals to buy consumer goods intended to provide immediate
satisfaction to their wants and needs.
Advantages of Charge Accounts
. It is very convenient way of shopping
- Paying for a number of purchases at one single time is definitely much easier than paying for each
one separately.
2. It eliminates the inconvenience as well as the danger of carrying too much money
- In fact, after having established one’s credit rating, an individual can just walk into a store, make a
purchase and say “Charge it.”
3. Charge accounts enable customers to buy goods only at the time they want them
-In some stores which provide delivery service, one could just simply pick the telephone and order the
goods he wants.
4. Charge accounts enables consumers to obtain goods even before they have the money
-It may appear quite surprising but, nevertheless, true that some people still prefer to make their
purchases through this method even if they could pay cash.
5. Charge accounts provide a valuable means of reference in many business transactions
-It helps the customers establish their credit rating with other stores.
The Use of Credit Cards
Within recent years, there has been observed the wide use of credit cards as an adjunct, of
charge account. This type of device serves to identify credit customers as those to whom the
store has given a symbol of its confidence in them.
Credit cards, however, pose problems which are not found in the use of signature identification.
Most credit cards may be used to purchase goods or services at only one or a limited number of
types of retail or service establishments.
multipurpose or universal credit cards, they are used primarily for dining and entertainment, for
accommodations at hotels, motels, and resorts, for personal transportation, and in other types of
stores and service organizations as listed in a furnished category.
multipurpose credit cards includes those used in connection with charge account banking
arrangements such as the BankAmericard, Midwest Bank Card, and the Master Card, and others.
The used of credit cards in the Philippines has now become common as those issued by Far East Bank,
BPI Credit card, Citibank credit card, Visa credit card, Diner’s Credit card, PCIB Mastercard and
others.
Installment Credit
The most common type of consumer credit today is installment sales or purchase credit.
A number of individuals term it as “buying on time.”
By bringing all consumers durables within the reach of most families, the mechanism of
installment buying makes mass production and low prices possible.
Through this method, the buyer is often asked to make a partial payment at the time of
purchase, termed down payment. The balance is expected to be paid with a series or regular
payments. As a policy and practice, a buyer of goods on installment credit is required by the
selling company to sign a formal agreement known as an installment contract.
important precautions that a buyer may take. They are:
a. Never allow yourself to be rushed or pressured into signing a contract until you became conversant
with all the facts.
b. Always insist for an extra copy of the contract.
c. Never sign any contract before all the blank spaces are filled in.
d. Read very carefully what you sign. Read again after signing.
Open charge accounts involve no signed promises on the part of the buyer.
Installment credit is largely confined to durable consumer goods while, generally speaking,
purchases on charge account consist of non-durable consumer items.
Most lenders ask a borrower to sign a promissory note, commonly called a note.
Another example of personal credit is personal loan.
Personal Loans
A person may borrow for a number of purposes, such as to pay cash for an appliance, for the repair of
house, to pay for medical expenses or to cover the expenses of one’s travel abroad.
The borrower who signs the note is the marker.
Anyone who signs a note addition to the borrower is called a signer.
A person with a good credit standing may be able to borrow on his signature alone called signature
or character loan.
Anything used as security for a loan is called collateral
co-signer shares the responsibility for the payment of the loan.
As endorser, this person becomes responsible for the payment of the loan if the borrower fails to pay.
When customers buy goods from a store on the basis of charge account, then, the form of credit is
implied.
when the obligations are supported by a written promise as for instance a promissory note or a trade
acceptance, then the form of credit is expressed.
Mercantile credit is equally known as commercial credit. Sometimes, it is also called trade credit.
mercantile credit represents an advance to the dealer to be paid in whole or in part from the funds
derived from the sale of goods entrusted to him.
Retail credit, on the other hand, is credit used by a consumer to finance purchases which he cannot
pay for, or does not wish to pay for, until some later date.
Types of Transactions Commercial Banks Finance
Commercial Loans. A commercial loan refers to credit that is granted for a short period to help
out the borrower with his temporary working capital needs.
Agricultural Loans. The usual purpose is to finance the planting, improvement, and harvesting of
agricultural products.
Industrial Loans. The bulk of industrial loans availed of by manufacturers and public utility firms
in the Philippines are those granted to finance the acquisition of new or additional plants and
machinery in connection with the production of goods or the expansion of services.
Real estate loans. These are loans granted to finance the acquisition or improvement of real
state, either urban or rural.
Personal loans. A personal loan is generally for consumption purpose.
Packaging credit advances. These are loans to exporters to finance the processing of export
goods prior to their being shipped to the foreign buyer.
Trust receipts. Trust receipts, in more limited fashion, are also granted to finance domestic
purchases of goods to facilitate trade.
Supervised credit” , as a term now in common use in agricultural production, is a combination of
production credit with technical help to the farmer using it.
The program U.S Department of Agriculture’s Farmers and Home Administration was designed to
assist family farmers who lost their crops year after year.
