Credit Fundamentals
Personal Loan – the most flexible. A multipurpose
Credit - an arrangement to receive cash, goods or
services now and pay for them later.
- transaction involving the transfer of
goods, services, funds, property or rights, thereby
creating an obligation on the part of those who
receive them, that must be complied within the
future.
Creditor/Lender – the one who sells on credit or
makes a loan. Connotes trust on the borrower’s
capacity and willingness to pay
Debtor/Borrower – anyone who buys on credit or
receives a loan. Ability to obtain goods or services
in exchange for a promise to pay.
Types of Credits
1. Installment Credit
2. Revolving Credit
3. Open Credit
Installment Credit - type of loan in which you
borrow one lump sum and repay it with interest in
regular fixed payments, or installments, over a
certain amount of time.
Revolving Credit - allow you to repeatedly borrow
and repay amounts from a single line of credit up
to a maximum limit.
Open Credit - unique in that monthly payments
vary, and balances are due in full at the end of
each billing cycle.
Common Types of Bank Loans in the
Philippines
1. Consumer Loan
2. Commercial Loan
Consumer Loan - type of loan available to
individuals so that they can finance specific types
of expenses.
Commercial Loan - type of loan that is used
exclusively for business purposes.
Types of Consumer Loan
1. Personal Loan
2. Student Loan
3. Home Loans and Mortgages
4. Auto Loans
5. Motorcycle Loans
loan that can be used for just about any daily need.
Student Loan - offered by select universities in
partnership with banks like the Development Bank
of the Philippines, one of the country’s foremost
state-owned banks. The universities who oversee
the students’ application process the loan
Home Loans and Mortgages - can be used for the
purchase of one’s own house and lot, for a vacant
lot, or for a condominium or small townhouse unit.
Auto Loans - enable the borrower to purchase a
brand-new vehicle, purchase a second vehicle, or
refinance a vehicle that they have already bought.
Motorcycle Loans - allow for the purchase of a
motor vehicle on flexible terms.
Types of Commercial Loan
1. Revolving line of credit
2. Accounts receivable financing
3. Fixed-rate loans
4. Bills purchase line
5. Equipment loans
6. Microfinancing
Revolving Line of Credit - a financial arrangement
in which a bank issues a maximum credit limit to a
business.
Accounts Receivable financing - allows a
business to borrow money from the bank against its
outstanding invoices, or amounts that have yet to be
paid to them by their customers.
Fixed-rate Loans - a business can expect to pay
the same amount of interest until the loan comes to
maturity. Both the principal amount on the loan and
the rate of interest are set in contract
Bills Purchase Line - business can liquidate
checks deposited to their name prior to local or
regional clearing. Big amounts money paid to them
via check can be used immediately.
Equipment Loans - are loans that can be used to
finance business equipment.
Microfinancing – financial services offered to
lower-income earners and smaller businesses, who
would otherwise not have access to conventional
banking due to poverty.
 Single Payment Loan – you do not pay anything
Types of Charging Account until the end of the load period (usually 60-90
1. Regular Accounts days)
2. Budget Accounts
3. Revolving Accounts Promissory Note – a written promise to repay
based on a debtor’s excellent credit history.
Regular Accounts – requires the buyer to make full
payment within a specific period of time (usually 25-30Promissory Notes Components
days). Seller may set a limit to the total amount that may1. Principal – amount that is promised to be paid
be charged 2. Time – days or months from the date of the
Budget Accounts – this credit agreement requires thatnote until it should be paid
a customer make payments of fixed amount over several3. Date of Maturity – date the note is due
months. 90-day, three payment plans. 4. Payee – the one to whom the note is made
Revolving Accounts – most popular form of credit. Maypayable
charge purchases at any time, but only part of the debt5. Interest Rate – the rate paid for the use of
must be paid each month. Payment required once amoney
month 6. Maker – the one who promised to make
payment
Types of Credit Cards
1. Bank Cards Tips on Applying for the Bank Loan of Your
2. Charge Cards Choice
3. Affinity Cards 1. Know the requirements in advance
4. Retail Store Cards 2. Prepare the documents
3. Prove your trustworthiness as a borrower
Bank Cards - Very popular credit cards (recognized all
over the world). Sometimes an annual fee must be paidBenefits of Credit
for the privilege of using these cards. Eg. MasterCard 1. / Convenience
Visa 2. Immediate Possession
3. Savings
Charge Cards - Subscribers pay a yearly membership4. Credit Rating
fee that is usually higher than bank cards. Cardholders5. Useful for emergencies
are not given a spending limit, but are usually expected
to pay the full balance each month. Credit Concern
1. Overbuying
Affinity Cards - Some organizations allow their 2. Careless Buying
names to be affiliated with a credit card. are co- 3. Higher Prices
branded with an issuing bank ex. charities. The co- 4. Overuse of Credit
branded company receives a small percentage of
credit sales. Cost of Credit
1. Interest
Retail Store Cards - Many retail stores offer their
2. Principal
own credit. These cards can only be used at these
3. Interest Rate
stores.
4. Time
Installment Sales Credit – a contract issued by
the seller that requires periodic payments at
specified times

Consumer Loans – a loan is an alternative to

charge account buying or installment salles credit.

Installment Loan – one in which you agree to

make monthly payments in specified amounts over
a period of time.