explain the various forms of credit
Answers
Types of Credit
Credit refers to the concept of a lender providing a loan for a borrower. There are various different types of credit – such as credit cards, overdraft facilities, higher purchase agreements and personal loans – depending on how the borrower intends on repaying the finance.
Credit cards
Credit cards are a type of credit that allow users to borrow money from a bank or credit card issuing company to purchase goods and services or to withdraw cash. There are countless credit card types, and various forms of charge cards, store cards, rewards cards and balance transfer cards available. Here at aqua we offer three different types of credit cards – The Classic, Reward and Advance cards – to suit your individual financial needs.
Bank loans
Other types of credit include loans, which can be paid off in monthly installments over a particular period. Mortgages are a type of credit often used to purchase property. They are secured against a property and are usually paid off in monthly payments over an extended period of time.
Overdrafts
Overdraft facilities are another type of credit that, because of a pre-arranged agreement authorised by your bank, allow you to withdraw money after the bank account balance reaches zero. An overdraft has a limit depending on your account history and needs. They are helpful in providing a safety net to cover short-term arrears and to compensate for a temporary lack of cashflow. Be aware that overdrafts incur interest and, depending on your agreement, may include an administration fee or monthly payment charges.
Higher Purchase and Personal Loans
Other types of credit include: a higher purchase agreement is a mechanism for borrowing money in order to purchase goods. Once the purchase is paid off you then rightly own it, but if you don't make regular payments, creditors can ask you to return the goods. Personal loans allow you to borrow an agreed amount and pay it back with interest over a fixed period of time.
INTRODUCTION :-
There are mainly 2 forms of credit available.
EXPLANATION :-
i) Formal Sector : Banks and Cooperatives
ii) Informal Sector : Friends, Family and Money Lenders
CONCLUSION:-
Formal sector is always preferred over Informal Sector.
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