It’s interesting to note that most of our modern terms involving cash have origins in the Greek or Latin languages.
The word’Credit’ is obtained from the Latin’Credo’ which roughly translates into”I Believe”, a fitting meaning to fortify a tradition of trust that entails monetary transactions. In the times of yore, borrowing and lending were purely done by guarantee through the spoken word instead of the written word. Credit in olden days did not necessarily involve money and the expression was used to describe barter exchanges of products and cavalry portfolio services.
However, in modern economy, the term credit denotes a trade involving cash. Nowadays long drawn contracts and agreements, a lot of them worded with legal terms which are beyond the comprehension of ordinary people, fulfill the duties of lending and receiving.
Credit means deferred payment or payment at a subsequent date for receipt of cash, goods or services. The deferred payment (late payment) is what is known as”debt”. Credit is granted by a lender or creditor to a debtor or the debtor.
A specified sum of money given to an individual for education, family, household, personal and vehicle functions is termed a’loan’, also called consumer credit, consumer lending or retail financing.
Some broad categorizations of customer loans
Consumer loans are characterized by different forms – Secured loans, installment loans, single loans, unsecured and secured loans, fixed-rate and unsecured loans etc..
• Single loans – also called interim or bridge loans; as the term indicates, they’re for short-term fund requirement. Single loans have to be paid back at the end of the loan period in a lump sum including interest prices.
• Installment loan or EMIs – are paid at regular intervals, usually monthly. Home and automobile loans come under this category. The longer the repayment term, more the cash flow as interest calculations vary.
• Secured loans in this category, you”secure” an advantage, a home, car or some other collateral which could be employed to regain payment if you fail to create the guaranteed payments. Secured loans also apply to home and car loans and as they’re backed by sizeable security, interest rates on such loans are reduced.
• Unsecured loans – are those who do not need collateral and generally granted only to borrowers with superior credit histories and ratings, more often companies or high net-worth individuals and interest rates are justified.
• Fixed rate loans a fantastic proportion of consumer loans fit this bracket. The same interest rate applies for the length of the loan term but compared to variable rate loans, fixed rate loans bring more interest as there’s the likelihood of the creditor making losses if the market varies.
• Variable-rate loans – upfront these loans have a lower interest rate and there is the clause of flexible interest rates applicable in regular intervals of the loan-term. The interest rate is based on an indicator ruled by market tendencies and an interest-rate spread calculated yearly, six-monthly or yearly.
• Convertible loans – are ones where the curiosity structure may vary from a fixed to variable interest rate or vice-versa at a predetermined period during the loan-term.
Securing consumer credit or consumer loans may be quite a taxing process and requires not just your informed and evaluated inputs but also sound financial advice from an expert financial advisor. It’s useful to remember the”Six C’s of Credit”, namely Capacity, Capital, Character, Collateral, Condition and Credit.