CLASSES OF CREDIT
Consumer Credit: This includes credit extended to individuals for personal use, such as credit
cards, personal loans, and auto loans.
Mortgages: These are long-term loans used to finance the purchase of real estate, such as homes
or investment properties.
Commercial Credit: This type of credit is extended to businesses to help them finance their
operations or investments. It includes business loans, lines of credit, and trade credit.
Revolving Credit: Credit that can be used repeatedly up to a certain limit, with payments and
interest based on the outstanding balance. Credit cards are a common example of revolving credit.
Installment Credit: Loans with fixed payments made over a specified period, such as auto loans or
personal loans.
Secured Credit: Credit that is backed by collateral, such as a car or a home. If the borrower
defaults, the lender can take possession of the collateral.
CLASSES OF CREDIT
Unsecured Credit: Credit extended without collateral, relying on the borrower's creditworthiness.
Credit cards and personal loans are examples of unsecured credit.
Open-End Credit: A form of revolving credit where borrowers can continually borrow up to a
predetermined limit, like a credit card.
Closed-End Credit: Loans with a fixed amount borrowed and a set repayment schedule, like a car
loan or a mortgage.
Short-Term Credit: Typically refers to loans with a short repayment period, often used for working
capital needs by businesses.
Long-Term Credit: Loans with longer repayment periods, often used for major investments or
purchases, like real estate.
Credit Lines: Prearranged amounts of credit that individuals or businesses can draw upon when
needed, often with variable interest rates.
Installment Plans: Credit arrangements where a purchase is paid off in equal installments, often
with no or low interest, such as for retail purchases.
Credit for Specific Purposes: Some credit is designed for specific purposes, like student loans for
education or medical loans for healthcare expenses.
KINDS OF CREDIT
Trade Credit: -is a business-to-business (B2B) agreement in which a customer can purchase goods
without paying cash up front, and paying the supplier at a later scheduled date. Usually, businesses
that operate with trade credits will give buyers 30, 60, or 90 days to pay, with the transaction
recorded through an invoice.
Consumer Credit: -It allows consumers to borrow money or incur debt, and to defer repayment of
that money over time. it is also type of personal finance product you can use to pay for goods and
services. It's offered by banks, retailers and specialist finance companies. With consumer credit,
you can split the cost of an item over multiple payments – rather than paying all in one go at the
point of purchase.
Bank Credit: -is the amount of credit available to a business or individual from a banking institution
in the form of loans. Bank credit, therefore, is the total amount of money a person or business can
borrow from a bank or other financial institution.
Open Credit: -is a financial arrangement between a lender and a borrower that allows the latter to
access credit repeatedly up to a specific maximum limit. Once the borrower starts making
repayments to the account, the money becomes available for withdrawal again since it is a
revolving.
Installment Credit: -is a loan that offers a borrower a fixed, or finite, amount of money over a
specified period of time. This way, the borrower knows upfront the number of monthly payments, or
“installments,” they will need to make and how much each monthly payment will be.
Mutual Credit: -is a form of money in which users pay each other using a system of debits and
credits. Within such a payment system, there is no need for cash or banks. Mutual credit can help
revive organic trade between neighborhood businesses or among community members.
Service Credit: -typically refers to the recognition of a customer's payment for services provided. It's
a credit granted to a customer's account when they have prepaid for a service or made an advance
payment.
SOURCES OF CREDIT
DISADVANTAGES
Easy to use for shopping, often come with rewards, and can help build your credit score.
If you don't pay off the full balance, you'll owe high interest. It's easy to spend more than you
planned.
Personal Loans:
Credit Cards:
You get a fixed monthly payment, lower interest rates if you have good credit, and can use the
money for various needs.
You need to meet certain Interest can add up, and qualifying for loan forgiveness can be tricky.
High student debt can affect your finances later.requirements, and you'll pay interest over time.
Auto Loans:
Helps you buy a car with structured payments. Often, interest rates are lower because the car is
used as collateral.
Cars lose value, so you might owe more than it's worth. If you can't pay, they can take the car.
Student Loans:
Invests in your education, which can lead to better job opportunities. You often don't have to pay
while you're in school.
Lets you own a home, usually with lower interest rates. You can potentially deduct interest on taxes.
It's a very long commitment, and if you can't pay, you might lose your home.
You need to meet certain requirements, and you'll pay interest over time.
Mortgages:
