QandAs: Loans

What is Credit?

Answer:
Credit is defined as a Financial

Arrangements or Financial Borrowings by one party from another party and the amount is repaid at a later date with or without interest depending on the terms and conditions. Here the first party is known as Debtor (or Borrower) and the second party is known as Creditor (Lender).

The main reasons for taking up the credit from various sources are varied and personal. Many persons are taking credit in form of loans (either Home Loan or Auto Loan) to purchase these goods and services and payments made later in the form of monthly installments. Credit makes the purchase of these luxury items more affordable which is otherwise not possible by the small monthly savings.

There are different types of Credits which a person can take however some of them are discussed below: -
(a) Overdraft means to take extra amount of cash out of the current account temporarily. Here one is suppose to repay the amount immediately otherwise high interest rate is charged.
(b) Credit card which is a means to purchase any goods using the card and than repayment is made to credit card agency in installments. However here also interest rate charged is higher.
(c) Home loan which is a means to purchase home or property and repayment is made in monthly installments. Here interest rate is comparatively cheaper and in many countries it is also provides benefit in income tax.
(d) Auto loan which is a means to purchase automobile and repayment is made through monthly installments. Many times in festival season there are offers in the market for interest free auto loans.
(e) Pawn Broking in which one borrows some money from Pawnbroker by give some precious substances to him/her for a limited period of time and than on repayment of the cash that precious substance is returned by him/her.
(f) Service credit which is a means of credit for the monthly payments for utilities such as telephone, gas, electricity, and water.
(g) Personal loan is a means of getting loan for some personal purpose. However the credit limit of this loan is limited and interest rate is higher as compared to home loan, etc.

Apart from these their are much more categories of loans but before taking any type of loan one must remember to pay the credit on time, control spending on the credit card, taking the cash advance must be considered as the last step or alternative and read all the terms and conditions associated with that loan. Take the advice from the Finance Broker or Credit Expert.