- TRADE CREDIT
There are two types of trade credit. A family can buy on open account from stores which extends credit to their customers. These accounts are usually settled within a short period in a single payment i.e. a week, a fortnight or a month. This type of credit is offered by local retail shops department stores and other provision stores to their customers.
The family’s wants like automobiles, furniture, jewellery, musical instruments, washing machines, refrigerators etc are bought on credit. The trade credit on such items to the families is of the second type. These items are bought on the installment plan.
The cost of installment credit varies with the commodity sold, the terms of sales and the types of customer with whom the seller deals. The families must analyse the cost of credit on the various stores in their own neighborhood and decide whether the credit, which is available is worth its cost.
- COMMERCIAL BANKS
Commercial banks provide credit to consumers for a short period like month or so. Such loans are usually provided to business and professional persons who hold line of credit at the bank. Such loans are made by banks on personal guarantee basis. Banks may also ask for easily marketable securities as collateral. Cash loans are made on personal character and some times may ask for a second person guarantee.
In cases of loans for purchase of a house, automobile or household equipments the lending agency may ask for mortgage of the property. Interest is charged on Equated Monthly Installment (EMI) or on monthly actual interest charges.
EMI: The commercial banks may charge a flat rate of interest varying from 8-16 percent and the charges along with the monthly repayments of loans known as Equated Monthly Installments, other banks may charge the actual interest due in each installment.
- INDUSTRIAL BANKS
These banks provide loans of small amount to consumers under installment plan. Banks expect one or two financially sound guarantors who guarantee the repayments of the loan. Interest charges are largely similar to those charged by commercial bank. Many industrial banks charge penalty interest for delayed payment. In addition to cash loans industrial banks finance purchase of automobiles, furniture, household equipments etc using mortgage of the property.
- INSURANCE POLICY LOANS
Loans are taken by consumers from insurance companies on their life insurance policies. All types of insurance policies have cash and loan values. Loans are extended to policy holders up to a certain value of the policy held by the policy holders. Interests on insurance policies are considered nominal. These loans are simple and easy for obtaining short term loans. So many families find it more convenient and economical to borrow loans on their life insurance policies.
- PERSONAL FINANCE COMPANIES
These are also known as small loan companies duly organized and registered under the laws. These finance companies provide credit for low-grade –credit risks to those who otherwise would be forced to borrow at high rates from pawn-brokers or unlicensed money lenders. They charge fixed interest rates. They require some form of mortgage as security. It is found to procure loans from these companies without producing cosignatories as required by industrial or commercial banks.
- CREDIT UNIONS/THRIFT SOCIETIES
Credit unions are Chartered Mutual savings and loan associations. They are formed by a combined group of workers in an organization. They carry on their work in the office space with infrastructural facilities provided by the employers. Members of credit unions deposit regular sums which are treated as saving deposits. Members purchase shares of the credit union and they are used as security. Loans are given on the prescribed multiples of the face value of the shares held by members. Only members of the union are eligible to borrow money. Nominal interest is charged on the loan. Security of the loan is the shares of the union or a co-signatory or guarantor who is also member of the union. Loans are repaid through installments through pay-roll deductions. They provide cheapest form of installment of loan repayment.
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