Credit (from Latin credit , " (him/her) believe") is a trust that allows one party to give money or resources to the party where the second party did not immediately replace the first party (thereby resulting in debt), but instead promised to pay back or return the resource (or other material of equal value) in the future. In other words, credit is a method of making formal reciprocity, which can be legally enforceable, and can be extended to a large group of unrelated people.
The resources provided may be financially (eg lending), or they may consist of goods or services (eg consumer credit). Credit includes any form of deferred payment. Credit extended by creditors, also known as lenders, to the debtor, also known as the borrower.
Adam Smith believes that barter precedes credits in history, but recent anthropological research proves otherwise. Barter mostly occurs between people who do not trust each other eg. hostile or unknown tribes usually conduct their transactions through barter. Instead, members of the same tribe mostly pay off their transactions in credit \ debt.
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Etimologi
The term "credit" was first used in English in the 1520s. The term came "from the beliefs of the Central French crÃÆ'Â © dit (15c.)" Trust, trust, "of the Italian credito, from the Latin lender" loans, entrusted to others, "from past participle credere" to trust, believe "." The commercial meaning of "credit" "is the original in English (the creditor is of the mid-15c.)" The credit union derivative phrase was first used in 1881 in American English; the expression "credit rating" was first used in 1958.
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Credit issued by bank
Loans issued by banks represent the lion's share of the existing credit. The traditional view of the bank as an intermediary between savers and borrowers is incorrect. Modern banking is about the creation of credit. Credit consists of two parts, credit (money) and related debt, which requires payment by interest. The majority (97% as of December 2013) of the money in the UK economy are made as credit. When a bank issues a credit (ie makes a loan), the bank writes a negative entry into the balance sheet liability column, and an equivalent positive number on the asset column; an asset is a stream of loan repayment income (plus interest) from a qualified individual. When debt is repaid, credit and debt are canceled, and money is lost from the economy. Meanwhile, the debtor receives a positive cash balance (which is used to buy something like a home), but also an equal negative liability to be paid back to the bank during that time period. Much of the credit created into land and property purchases creates inflation in those markets, which are the main drivers of the economic cycle.
When a bank creates credit, it effectively owes money to itself. If the bank issues too many bad loans (debtors who can not afford to pay back), the bank will go bankrupt; have more responsibilities than assets. That the bank has never had money to lend in the first place is immaterial - the banking license gives the bank to create credit - what matters is that the total assets of the bank is greater than the total liabilities, and that it holds sufficient liquid assets - such as cash - for fulfill its obligations to its debtor. If it fails to do this, the risk of bankruptcy.
There are two main forms of private credit made by banks; unsecured (unsecured) credit such as consumer credit cards and small unsecured loans, and secured (guaranteed) loans, are usually secured against money-bought items (houses, boats, cars, etc.). To reduce their exposure to the risk of not getting their money back (default credit), banks will tend to issue large amounts of credit to those who are considered creditworthy, and also need collateral; something equivalent to the value of the loan, which will be forwarded to the bank if the debtor fails to meet the terms of the loan payment. In this case, the bank uses the sale of collateral to reduce its obligations. Examples of secured loans include consumer mortgages used to purchase homes, ships etc., and PCP credit agreements (personal agreements) for car purchases.
The movement of financial capital usually depends on the transfer of credit or equity. The global credit market is three times the size of global equity. Credit in turn depends on the reputation or creditworthiness of the entity responsible for the fund. Credit is also traded on the financial market. The purest form is the credit default swap market, which is basically a market that is traded in credit insurance. Credit default swap represents the price at which two parties redeem this risk - the seller's protection takes the risk of credit default in return for a payment, usually denominated in basis points (one basis point is 1/100 percent) of the notional amount will be referenced, while the buyer's protection pays this premium and in the case of an underlying default (loan, bond or other receivables), grants this receivable to the seller of protection and receives from the seller a nominal amount (ie, made intact ).
Type
There are many types of credit, including but not limited to bank credit, trade, consumer credit, investment credit, international credit, public credit and real estate.
Trade credit
In commercial trade, the term "trade credit" refers to pending payment approval for purchased goods. Credit is sometimes not given to buyers who have financial instability or difficulty. Companies often offer trade credits to their customers as part of the terms of the purchase agreement. Organizations that offer credit to their customers often use credit managers.
Consumer credit
Consumer debt can be defined as "money, goods or services provided to a person without immediate payment". Common forms of consumer credit include credit cards, store cards, motor vehicle financing, personal loans (installment loans), consumer credit lines, retail lending (retail installment loans) and mortgages. This is a broad definition of consumer credit and conforms to the Bank of England definition of "Loans to individuals". Given the size and nature of the mortgage market, many observers classify mortgage loans as separate categories of personal loans, and consequently housing mortgages are exempt from some consumer credit definitions, as adopted by the US Federal Reserve.
The cost of credit is an additional amount, exceeding the amount borrowed, to be paid by the borrower. This includes interest, setting fees and other expenses. Some fees are mandatory, requested by the lender as an integral part of the credit agreement. Other costs, such as for credit insurance, may be optional; the borrower chooses whether they are included as part of the agreement.
Interest and other costs are presented in a variety of different ways, but under many legislatures, lenders are required to quote all mandatory fees in the form of annual percentage rate (APR). The purpose of APR calculation is to promote "truth in lending", to provide potential borrowers a clear measure of the true borrowing costs and to allow comparisons made between competing products. APR is derived from the advance payment and payment patterns made during the agreement. Optional costs are usually not included in APR calculations.
See also
References
- Logemann, Jan, ed. (2012). Development of Consumer Credit in a Global Perspective: Business, Regulation, and Culture . New York: Palgrave Macmillan. ISBN 978-0-230-34105-0.
External links
Quotes related to Credit on Wikiquote
Source of the article : Wikipedia
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