Credit Flashcards
“Credit is a system whereby a person who can’t pay, gets another person who can’t pay, to guarantee that he can pay”
Charles Dickens (Little Dorrit)
Contract agreement in which a borrower receives a sum of money or something of value and repays a lender at a later date, generally with interest or risk financial or legal penalties
Credit
Most common form of buying on credit
Credit cards
A potential that a contractual party will fail to meet its obligations in accordance with the agreed terms
Credit Risk
Nature/Characteristics/ Elements of Credit
Credit is a bi-partite or two-party contract
Credit is elastic
Credit involves the presence of trust of faith
Credit involves risk
Credit involves futurity
Source of credit
Creditor
Credit can increase or decrease by the creditor based on what?
Performance of the debtor
Basic element of credit is the creditor’s reliance on both the debtor’s ________
ability and willingness to pay
As to maturity
Short Term (within 1 year)
Medium Term (1 to 5 years)
Long Term (more than 5 years)
As to payment interest
Ordinary
Discount
As to source
Public: Government
Private: Commercial enterprises, banks and other financial institutions
Interest is paid together with the principal in maturity date
Ordinary
Interest is automatically deducted from the principal at the time it is granted
Discount
As to method of release
Lump-sum
Installment
As to source of payment
Self-Liquidating
Non-self-liquidating
