Types of Credits

Family Economics And Consumer Education 3 (2+1)

Lesson 11 :Credit

Types of Credits

There are two principle ways in which a family may obtain credit.

  1. Trade credit: Family may use trade credit to buy goods and pay for them at some time in future. The seller who sells the goods extends the trade credit to his customers. This kind of credit is found to be very common. Monthly purchases of goods or provisions can be made on credit by the families belonging to lower income groups.
    &; Some durable household goods might also be purchased on trade credit basis. The borrower would repay the cost of the goods along with agreed rate of interest on this capital cost over period of say, every month, for a period of one year, two years and so on.
  2. Money credit: This is another way of getting credit by way of borrowing money from banks or individuals who lend money to needy persons.
    Money credit is used by the family to buy the goods it wants and repay the money to the lender at a later date.
    The lender may receive the interest from the borrower at a lump-sum at the time of borrowing or he may receive the interest separately along with monthly installments. The lender may receive the interest at the end when the entire loan is repaid according to the agreement with the borrower.
    The family assures the obligation to pay a certain amount of money after a given time whether the credit is obtained, directly from one trade or from other source of financing. A lump sum liquidation of loan takes place when the entire amount is paid at one time.
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Last modified: Tuesday, 3 April 2012, 5:11 AM