Classes and Kinds of Credit

Classes and Kinds 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 amount owed
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.
ex. Car loans, appliances
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 qualifications
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 businessmen
intended to assist them in the operation of
their business.
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 Purpose
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 Associations
2. . Government Banks
2.1 Development Bank of the Philippines
2.2 Land Bank of the Philippines
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 exporter in order to
finance an export operation
Industrial Credit
 Intended for financing the needs of
industries like manufacturing, logging,
fishing and others which involves big
amount of money
 Long term credit
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 fund the acquisition
of capital assets.
Types of Commercial Credit
1. Secured 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 floating rate of prime rate + 2%
compounded monthly.
Real State Credit
 Credit secured purposely for construction,
acquisition, expansion or improvement of
real state properties.
According to Maturity
1. Short-term credit
2. Medium or intermediate term credit
3. Long-term credit
Short- term Credit
 Payable within one year from the date of
acquisition
Medium or Intermediate term Credit

 Ranges from one year to five years in
maturity.

Classes and Kinds of Credit

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Classes and Kinds of Credit

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Classes and Kinds of

Three Types of Consumer Credit:

3. Installment Closed-End Credit

ABC Company is looking to finance the

Medium or Intermediate term Credit

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