Classes and Types
of
Credit
Credit classified in various
ways such as:
1. According to type of user
2. According to objects of
exchange/According to whether
merchandise or money is given
3. According to purpose
4. According to maturity
Classes of Credit According to
the Type of User
1. Consumer credit
2. Mercantile credit
3. Bank credit
4. Investment credit
Consumer Credit
Consumption credit
Kind of credit extended to consumers
in order to facilitate the process
of consumption
Three Types of Consumer Credit:
1. Non installment Credit
-is either secured or unsecured-
due all at once in a lump sum
payment of the full
2. Charge Account/Revolving
Credit
-credit that is renewed as the
debt is paid,
allowing the borrower access to a
line of credit when needed.
ex. Credit card
3. Installment Closed End Credit
-an extension of credit by
which fixed, scheduled
payments are made until the
loan is paid in full.
Advantages and
Disadvantage of Installment
Credit
Advantages:
1. Predictable payments
2. Lower cost of borrowing
Disadvantages:
1. lenders do not allow you to
pre-pay the loan balance.
2. lenders have more
stringent
Mercantile Credit
Credit which one
businessman
may extend to another
when selling
goods on time for resale
or commercial use.
Commercial Bank
Credit
Bank Credit–refers solely to
the credit
given by
commercial banks to
business men intended to
assist them in the
operation of their
Investment Credit
Utilized by a business
organization for the purchase
of fixed assets or to carry
minimum business
operations.
Evidenced by negotiable
bonds or long-term notes.
According
to Whether
Merchandise or
Money is Given
Merchandise Credit-obtained
on charge account and
installment plan
Borrowing Money
According to Purpos
e
1. Agricultural Credit
2. Export Credit
3. Industrial Credit
4. Commercial Credit
5. Real State Credit
Agricultural Credit
Type of financing used to provide
funding for agricultural producers.
Sources of Agricultural Credit:
1. Private Banking Institution
1.1 Private Commercial
Banks
1.2 Rural Banks
1.3 Savings and Mortgage
Banks
1.4 Private Development
Banks
1.5 Stock Savings and Loan
Export Credit
a loan given to a person
or company
who has exported
goods while they wait for
payment from
the buyer.
a loan extended to an
importer by a bank
in the country of the
Industrial Credit
Intended for financing
the needs of
industries like
manufacturing,
logging,
fishing and others which
involves big
amount of
money
Commercial Credit
refers to a pre-approved
amount of money that is
issued by a bank to
a company
a common financing tool
used by companies to
maintain working
capital requirements, purchase
inventory, and
Types of Commercial Credit
[Link] commercial credits -
secured by collateral
2. Unsecured commercial credits –
not secured by collateral
strong credit profile
financially sound
proven business
pre-approved amount for an
unsecured commercial credit is
generally lower and comes with a
higher interest rate.
Is it an example of a secured
or unsecured commercial
credit?
ABC Company is looking to finance
the purchase of inventory for
sale during Boxing Day in Canada. To
do so, the company secures a
commercial credit with a lender
for$100,000 collateralized on
the company’s property, plant, and
equipment. The interest rate is a
Real State Credit
Credit secured purposely
for construction,
acquisition,
expansion or improvement
of real state
properties.
According to Maturity
[Link]-term credit
[Link] or intermediate
term credit
[Link]-term credit
Short term Credit
Payable within one year
from the date of
acquisition
Medium
or Intermediate term
Credit