Credit
Credit in financial jargon is the loan granted by one person to another who repays or return that loan at later date. It is not essential that Credit is given in terms of money but interms of resources also. For example the lender provides the debtor opportunity to buy something he sells without immediate payment and the debtor promishes to clear the debt sometime later.
Credit is granted to person of Credit worthiness. If the person does not repay the dues or loan in time as per agreement he is called defaulter and his Credit worthiness is damaged. Next time if he seeks for Credit he may be denied. In order to restore his Credit worthiness he would have to take the lender into added confidence after repeated transaction that shows his ability and willingness to pay dues in time.
Credit is not allowed to person with financial difficulties or whos Creditscore in the past is below average. In business world business transactions are often carried on Credit known as trade- Credit. Credit ors generally prepares sales agreement and get it signed by the purchaser before allowing Credit to him. The agreement clearly states that the Credit buyer would repay the debt in time and clear the dures in installment or in one shot. In case of delay in payment he would have to pay interest at certain prefixed rate ot the market rate whichever is applicable. Big companies employ Credit managers to handle the Credit volume of his business.
In commercial world Credit is denominated as unit of account though it can not act as money in strict form. Credit,however acts as medium of exchange. Credit adds to the supply of money in an economy. Money supply always includes Credit in various forms in the market. Credit is tradable in the market. In Credit default swap which is the price at which the parties exchange the risk the seller bears the risk of default of Credit in return of a fixed payment of the notional amount. On the other hand the buyer pay the premium.
Consumer Credit are menat for households. They buy various household items on Credit and in turn bear certain interest rates prevailing in the market. Many shops are sponsored by the companies manufacturing goods who are provided f acilities to grant credt buying on zero rte of interest.
Installment Credit is a payment of dues in installment that is fixed and includes interest amount if any. There are Credits allowyed on land purchase, construction of home loan, home mortgage, home improvement loan, Home equity loan, auto loan, boat loan, student loan, vacation loan or personal loan for marriage or other purposes.
Revolving Credit is different from consumer Credit. In this system of Credit the Credit limit is fixed and once this limit is achieved the Credit is again revolved for another limit. In case of crdit cards in the modern days this revolving system is carried to provide liquidity to card holders provided the old debts are cleared.
The Credit card holder may use buying goods or services or withdraw money upto a pre-approved Credit limit. The borrower may repay this debt over a time agreed by the the lender or bank who issues Credit card. Once ths repayment is done the amount of Credit limit is revived that can be again used by the holder for fresh transactions on Credit.
Other Articles
