Credit
Credit is money which is borrowed in order to purchase goods or services at a time when the consumer may not have cash available on hand. Funds obtained via credit will then be repaid at a later date as agreed upon by the lender and the borrower. It is, essentially, a deferred payment arrangement.
All types of goods may be purchased on credit including home loans or mortgages, cars, computers and groceries. A wide range of services may also be paid for using credit such as hotel accommodations, meals at restaurants, as well as utilities such as telephone and cable services.
Other common forms of credit include personal loans or lines of credit. A personal line of credit enables you to have money whenever you need it, has a low interest rate and allows the borrower to meet ongoing credit needs such as home renovations.
Spotlight on Credit
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About Credit
There are two main types of credit: loans and revolving credit. Loans may be general in nature, such as a personal loan, or initiated to finance a specific purchase, such as a home mortgage or auto loan. With revolving credit, the borrower always has access to the amount of their line of credit until the limit is reached. Moreover, each time the borrower pays off an outstanding amount, an equal portion of credit becomes available for them to spend again.
A credit card is a common form of revolving credit that allows the borrower a constant line of credit to spend, which the borrower is required pay off with monthly payments. Before applying for a credit card, it is important for consumers to be aware that a failure to make payments will reflect negatively on their credit reports, thereby resulting in a bad credit rating. The same goes for all other forms of credit that require the borrower to meet the terms of the loan and repay what is owed on time.
Depending on the terms of a loan agreement, the borrower will be required to repay the credit in regular installments over a specified period of time. Most loans have specified repayments of approximately equal amounts and come with a demand of interest on top of the principal amount borrowed. Lenders will normally charge interest on loans or revolving credit for purposes of covering the lending risk, as well as to make a profit on the amount borrowed.