Types of credit (commerce tutorial)

Short-term Credit

When short-term credit is offered, the amount involved is usually small and the credit period extends to no more than 1 year.

Informal Credit

  • Credit is given without any written agreement.
  • Does not involve collateral security.
  • Small amounts are involved.
  • Repayment is to be made within one year.
  • Usually offered by the retailers to their trustworthy customers.

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Use of consumer credit

Concept of credit

consumer credit is defined as credit granted to an individual especially to finance the purchase of consumer goods or to defray personal expenses.

The idea behind the use of credit is either to enable a person enjoy consumer goods now and pay later or to use money that he is yet to earn.

The originator of credit is the person or company who originally extended the credit, while the holder is the individual or business who obtained the debt at a discounted price in order to collect payments at a subsequent time. Auto dealers are credit originators at the time a consumer purchases an auto on credit, but many loans are subsequently assigned by them to banks or sales finance companies, which become credit holders.

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