Credit is the trust of one entity on the other in order to acquire some sources from each other. One party gets the required resouces but the other party does not charge at the same time or immediately to the first party( thereby generates a debt), but at that time arranges either to repay or return those same resources or of same worth at some other date. The resources provided could be in a financial form of loans, or it may contain goods or services(e.g Consumer credit). Credit is produced and extended by an entity known as creditor or lender to a debtor or we may say borrower.
Consumer Credit:-
Simply debt can be defined as money , goods or any sort of services provided to an individual instead of payment. Some of the Common forms of Consumer Credit includes the following:-
- Credit Cards
- Store Cards
- Motor Finance
- Personal Loans
- Retail Loans
- Mortgages
Many people around the World classify Mortgage as an independent entity and a different category of personal borrowing and even some of the residential morgages are excluded from some definitions of consumer credits and one such as that one is being applied by the Federal Reserve in the U.S.
Additional amount on the Credit, paid by the borrower is the cost of the credit and it is mandatory for the borrower to pay. It may include interest, arrangement fees and other charges by the debtor. Some of the charges like the credit insurance are optional. The borrower can opt rather to choose them or not.
Interest and Credit charges are shown in a variety of ways but under many legislative regimes debtor must quote all mandatory charges in the form of annual percentage rate. It promotes truth and gives the borrower a clear idea of cost of borrowing so that he/she may compare between the products of different lenders..
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