Types of Credit

The types of credit are very important for the economy in our days since it allows us to add extra money to generate more wealth.

The word credit comes from the Latin “ creditum ” , which is defined in Spanish as something given by trust . Most of the time it is used as a simile of ideas such as reputation or domain over something. They are meanings that are aimed, in principle, at aspects of a commercial and financial nature, although the term is also used in other cases.

Regarding the educational area, a credit is defined as that evaluation unit that is assigned to the evaluation of the student’s performance to precisely measure his performance , according to the time in which he must obtain the highest possible score.

Another application that is given to the term ” credit ” is closely related to the recognition of the rights that a person has with respect to a musical product or in the relationship of the participants of a film that has been shot and presented. It is also common to show the credits of people who participate in certain television programs.

All these uses are appropriate when inserted in the context that corresponds to them, however, it is necessary to point out that the greatest use given to the concept of credit is closely related to that action that faithfully describes the act of lending with the promise of payment made through the bank for the person who for various reasons requires a specific amount of money. The remuneration that is acquired as a payment commitment, be it in a single issue through several partial payments, will generate an interest rate that will increase the total amount requested.

From this point of view, the bank credit, in order to be carried out successfully, it is necessary that at the beginning of the application process, a series of requirements are met, ranging from being able to demonstrate by the applicant, that it has a good credit history, that it has the necessary income to be able to justify the feasibility of payment; among other things.

The types of credit that exist are:

Consumer credit

In this case, the operation consists of the bank assigning the applicant the desired amount so that they can acquire the products or services they want and that was the reason for their decision to apply for said bank loan. The debt commitment, most of the time, is agreed to be repaid together with the interest agreed in the credit negotiation in short terms.

commercial credit

The one in charge of giving this type of credit corresponds to the financial entities that lend to companies that are dedicated to the business, regardless of their size. The purpose of granting the credit is that the requesting company can solve some budgetary needs that are not enough with the initial capital, such as the requirement of more raw material, more labor or payment of services. In exchange, the financial entity will obtain as benefits the payment of interest that will generate profits.

The term for the debt to be settled, most of the time corresponds to a period of short periods of time.

Mortgage credit

When a person needs to buy a house and it is not within their budgetary capacities, they resort to a banking institution that offers mortgage loans, which consists of giving a loan with the explicit purpose that the applicant can obtain a house, land or any type of property. of real estate which has been previously agreed upon in the negotiation. In order for the payment to be made, the applicant must guarantee the payment of the debt by putting the acquisition of the property as a mortgage so that in the event of not fulfilling the promise of payment, the bank disposes of said property. In this case, the terms are for a period ranging from 10 to 40 years.

Bank credit

It is granted by the bank so that a company or individual can have a credit, unlike a loan, in this case, not only the interest generated by the total amount of the loan granted must be paid, but it must cover the interest of the proportional part that is being used in each of the credit dispositions.

microcredit

In recent years, this type of credit has developed from the boom in the generation of micro-enterprises. It is to them that credits of this type are mostly destined. The purpose of this type of financial aid is focused on the positive development of the company in the improvement of the areas that are necessary for a better development, which is why said loan has been requested.

Payment credit

The idea is to allocate the financial resources obtained for this credit with the sole purpose of being able to allocate it to the activities of the production area and in particular to obtain the raw materials that are necessary. These resources can also be used to cover salaries and wages and maintenance expenses.

This form of credit loan is divided into two components for specific purposes; On the one hand, there is industrial credit, and on the other, we have agricultural credit. Both intended for the sectors referred to in the nomenclature.

That is, industrial credit seeks to facilitate the purchase of all those inputs required by industrial production. In the case of agricultural credit, it is sought that seeds, fumigators, tractors and other resources related to their activity can be acquired.

Medium and short term loans

This type of credit has as an assignment criterion, the term that they handle so that the payment of the debt commitment that the applicant acquires is fulfilled. In most cases, this is based on a term of one to five years; and in said period, the interest agreed upon by both parties is generated and must be covered together with the amount of the loan.

long-term loans

The same criterion is used as in the previous case, that is, the term agreed in the credit contract is considered as the term, in this case, it is stipulated that the time of total fulfillment of the debt goes from a period of 9 to 40 years. Period in which the total amount of the debt must be settled with its respective interests. Compliance with the payment of the debt may be feasible since these are gradually covered by the debtor in small payments.

The importance of credit

One of the keys so that good returns can be given at the end of the operation before the advance request of a debt, is to have a financial commitment, a monetary discipline and an efficient planning of the use of the money for the purposes for which it was requested.

It is of the utmost importance that the holder of a credit really knows how he should use said loan so that setbacks do not arise due to mishandling of the same or in a reckless manner, which will lead him to a scenario in which he will not be able to cover the debt and will be in legal and commercial problems.

The most efficient way in which the scenario of complying with the debt commitment can occur is based on the fact that you develop an expense and payment plan that represents the real possibilities of both the destination of the money and the liquidity of the debt.

It cannot be denied that one of the advantages offered by credit systems is that a person has the possibility of having a good or service in a shorter time than he could obtain if he only acquired it, in the best of cases, with his own liquid money. The credit allows to expand the purchasing power of the consumer.