Credit is a concept that many of us deal with almost on a daily basis without giving it much thought. In monetary terms, it means that one acquires services or even goods from suppliers and pays for them later. For this to be possible though, the two parties must come into agreement that on a given date in future, the payment will be settled.
The person who agrees to give out the goods or services in advance for the deferred payment is known as the creditor, while the other party is known as the debtor. Operating on credit basis is normally enticing for the debtor because after all, they get to pay much later after they have enjoyed utilizing whatever it is that they acquired from the creditors. On the other hand, the lenders do not mind operating this way because they attract more customers, hence more sales. In addition, they make more money because they get paid more due to the interest that they charge for the extended services.
The most common way through which people get these facilities is through the use of credit cards. These cards allow you to shop or access unlimited services without paying in cash for them. For the lender to avail these services, you must demonstrate that you are actually able to meet your obligation by paying up at the expected time. In other words, what we are talking about here is your financial rating, which shows how you have been performing financially over the years.
There are advantages associated with credit as well as disadvantages. To begin with the advantages, the debtor is able to access goods and services even though he may not have a single dime. It gives you power to acquire something which is tangible in exchange of a promise which is intangible. If the debtor is able to demonstrate that he is able to pay up in good time, he acquires a good social standing among his friends and a good financial record among his lenders and bank managers.
It is important to note that money available for borrowing falls under two categories. There are those that fall under the category of loans and those which fall under revolving funds. Many people may not be familiar with all this. The major difference is that loans include mortgages, personal loans, car loans among other. The revolving funds loans are simply consolidated in the credit cards that we are all so fond of.
What you need to note about these two forms of borrowed money is that the repayment modes are different. Loans are monies that are first given out to lenders and which they repay over a given period of time. On the other hand, revolving funds do not ever get to the debtor, but he pays for them for enjoying services in advance. The transactions are captured on a special card which is issued upon borrowing the revolving funds.
Peter Gitundu Researches and Reports on Finance. For More Information On Credit, Read More Of His Articles Here MANAGE CREDIT
RECOMMENDED RESOURCES
(1) Debt Counselling, The New Alternative to Take Control Over Your Debt
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