ASPREC, CRISTINE JOYCE

QUIZ BASIC FINANCE

1. Explain at least 3 sources of credit.

Individual money lender- individuals who lends the surplus of their money. In most cases,
individuals charge a higher interest to protect himself. They are also called loan shark. They are
usurious lenders that don’t have license to engage in the lending business.  They charge high
interest rates for refinancing, repossession or late payments, and they allow only a very short time for
repayment.
Commercial Bank – one sources of credit where borrowers make loan not only businessmen to
do business operation but also individuals for personal purposes. Contract are formed in this
source of credit where they legally can be held a principal and interest due.
Pawnshop – you can acquire loan thru mortgage. They hold your property and lend you a small
portion of its value. You will get your property back if you pay on time plus the interest. If you
don’t pay, they will sell it, although, extension can be arranged but with a high interest.

2. Briefly explain the five Bases of credit, except country.

Character - this refers to an individual’s credit history or reputation when it comes to paying
debts. This involves a lot of information that appears on a person’s credit report. The lenders will
look for the amount of money borrowed from the past, if you are paying debt on time or if you
have any charge or collections, etc. it is similar to job hunting process where they evaluate your
professional reputation and character through interviews or resume to see if you are fit for that
job.
Capacity – it refers to the overall ability of a person to repay back their debts. Lenders will
evaluate this using the income of the borrower. In addition, age and health are also factors of
capacity. Where age is evaluated by an individuals’ capacity to enter to contract. Where minor are
not allowed. Health is also important to consider, because will determine if a person is strongly
work or to have a source of income and pay debts in the future.
Capital – this refers to amount of money a person plans to put down towards a particular loan.
The lenders will look how much capital you have because that can help them determine how
likely a person is to default from their debt.
Collateral – this refers to the item that is being used to secure a loan. Something that the lender
will be able to repossess in the event that the persons stop to paying his/her loan. For example,
pawnshops allow people to use all kinds of things for collateral to secure a loan it includes
jewelries, cellphones, etc.
Conditions – this refers to how borrower intends to use the loan. Lenders will look to the true
valid reasons to approved or give the loan based on the reason that the borrower is requesting it.

3. What is the purpose of credit limit? Explain.

In applying credit card one of the most important thing to know your credit limit. A credit limit is
the maximum balance you can have on your card at any given time. It includes your purchases,
finance charges, service and penalty fees, balance transfers, and cash advances. It will restrict how
much of your balance you can stretch or how much money you can spend thru credit card. It will be
your guide for an individual not put their selves in into a pile of debt. But sometimes people tend to
overspend their credit limit that led them to long term financial issues. That’s why be careful to your
spending habits and be smart credit users.

4. What is credit information? Why is it importance

A credit information is a person’s information in applying or acquiring loan. It can be obtain by

interviews, on a mercantile agency, trade group interchange, bank credit departments, and
miscellaneous services. Credit information is important because it is where lenders will evaluate
the Five C’s credit for them to know if that person is qualified to get a loan or if that person has
the ability to pay debt.
5. What important functions does the credit department perform?

Credit department set the requirements for establishing of credit for new customers and maintains
the credit lines for the existing customers. It facilitate sustainable sales growth and help to
develop strong customer relationships. It is typically consist of credit managers where his task is
to make necessary recommendation to the loan committee whether to extend the credit or not and
to what extent.