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What is credit? Credit is money that a credit issuer makes available to a borrower who agrees to repay it. Consumer credit is used by consumers to purchase goods and services. It does not include mortgage payments.
Why use credit? Credit is used to defer payments (to pay later). Credit is also used for convenience (ex: credit cards are accepted everywhere) Businesses profit from credit because consumers often spend more because of it.
Some types of credit
Credit card • Pre-approved credit from a financial institution, etc. • Used to make purchases or obtain cash advances. • Annual interest rate: 18% to 19. 5%
Personal loan • Loan issued from a financial institution. • Annual interest rate: 10% to 14%
Installment sales • Agreement with a merchant to defer payment or pay in installments • Example: “ 36 easy monthly payments”
Mortgage • It is a loan from a financial institution to purchase a home or property. • The term is often many years • The property is the collateral (taken if borrower default on loan).
Student loan • Financial institutions give out loans to students. • Interest often isn’t charged for the duration of the program (limits though). • Sometimes, part of the loan is forgiven at the end of the studies.