Types Of Credit List Of Top 8 Types Of Credit With Explanation

List of Top 8 Types of Credit

Trade CreditTrade CreditBank CreditRevolving CreditOpen CreditInstallment CreditMutual CreditService Credit

Credit is the arrangement where the borrower receives the money from the lender and, in turn, agrees to pay the interest for the period during which money is held with the borrower and promises to repay after a predetermined time. Credit is of many types, and some of the examples include mortgage loans, letters of credit, bank guarantees, consumer credit, trade credit, etc.

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#1 – Trade Credit

Trade CreditTrade CreditThe term “trade credit” refers to credit provided by a supplier to a buyer of goods or services. This makes it is possible to buy goods or services from a supplier on credit rather than paying cash up front.read more refers to credit in business dealings like selling goods on credit where the customer promises to pay money later, buying goods on credit where we, the customer of the supplier, promise to pay to the supplier on a later date. It is given based on the borrower’s financial capability, i.e., credit taker. In some cases, it is given based on a relationship with the person asking for credit, or it depends upon business rules. In a large organization, the credit rules are the same for all the customers.

#2 – Trade Credit

Consumer Credit refers to money, goods, or services provided on the agreement with the consumer to pay later with the charges for using the credit. Consumer credit is specifically designed for consumers to give them various benefits. Consumer credit involves the hire purchase goods, personal loans, credit insurance, vehicle finance, etc. consumer credit is given on the basis creditworthiness of the consumer, and rules of credit are the same for all the parties. Purchasing goods on EMI is also an example of consumer credit. The banks gives the overdraftOverdraftOverdraft is a banking facility that offers short-term credit to the account holders by allowing them to withdraw money from their savings or current account even if their account balance is or below zero. Its authorized limit differs from customer to customer.read more facility also falls under consumer credit..

#3 – Bank Credit

Bank CreditBank CreditBank credit is usually referred to as a loan given for business requirements or personal needs to its customers, with or without a guarantee or collateral, with an expectation of earning periodic interest on the loan amount. The principal amount is refunded at the end of loan tenure, duly agreed upon, and mentioned in the loan covenant.read more is an extension of consumer credit. In bank credit, the bank gives loans and credit facilitates to clients. Consumer credits are given based on creditworthiness, analysis of financial statements, and value of the asset given by consumers as security. Examples of consumer credit are mortgage loans, cash credit facility, housing loans, etc., letter of credits, bank guarantee, discounting ofBills of exchange are negotiable instruments that contain an order to pay a certain amount to a particular person within a stipulated period of time. The bill of exchange is issued by the creditor to the debtor when the debtor owes money for goods or services.read more bills of exchangeBills Of ExchangeBills of exchange are negotiable instruments that contain an order to pay a certain amount to a particular person within a stipulated period of time. The bill of exchange is issued by the creditor to the debtor when the debtor owes money for goods or services.read more also falls under the bank credit facility.

#4- Revolving Credit

Revolving creditRevolving CreditA revolving credit facility refers to a pre-approved loan facility provided by banks to their corporate clients. It states that the companies are free to borrow funds from these financial institutions to fulfill their cash flow needs by paying off the underlying commitment fees.read more involves the continuous credit in which the lender gives the extension of credit to the borrower so long as the account is regular and open by regular payments like in case of credit card the credit is given regularly and limit of credit is given and payment to be made on monthly or quarterly basis. And the account will continue till it is closed, i.e., credit is extended every month.

#5 – Open Credit

Open Credit has a feature of both installment credit and revolving credit. If an open credit limit is not set, the credit card is given, and then one will use it throughout the month, and at the end of the month, the bill will be given to the cardholder to re-pay and continue the service. Electricity bills, gas bills, telephone bills, etc., are examples of available credit, i.e., use first and then pay later and available for all.

#6 – Installment Credit

Installment credit is the extension of bank credit. When we obtain credit from banks by way of loan, the bank sets the fixed monthly installment as repayment type of loan along with interest up to a certain period till the loan gets re-paid along with interest. The bank or finance company charges a penalty if the borrower cannot pay the installment.

#7 – Mutual Credit

In mutual credit, money is not used as in this case. If one person owes another person for something that another person also owes to the first one, the credit becomes mutual credit. So credit gets canceled with each other, and in case a balance remains after that, then the same is settled by the mode of cash or equivalent. Like in business, one person is a creditor and a debtor. Hence, they mutually settle the payments.

#8 – Service Credit

In-service credit, the credit is given for services availed earlier. Like lawyers ask for final fees once the case is over, the accountants charge after filing the returns. Electricity bills, telephone bills, gas bills, and post-paid bills are examples of service credit. Service credit borrowers can pay after availing of the service at fixed intervals. But if the service receiver fails to pay at fixed intervals, it may cancel services or charge a penalty for late payments.

List of Top 8 Types of Credit#

#1 – Trade Credit#

#2 – Trade Credit#

#3 – Bank Credit#

#4- Revolving Credit#

#5 – Open Credit#

#6 – Installment Credit#

#7 – Mutual Credit#

#8 – Service Credit#

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