Module 4: Credit Transactions
OUTLINE
 NATURE OF CREDIT
 BASES AND SOURCES
 CLASSIFICATIONS OF CREDIT
 CREDIT INSTRUMENTS
Credit
 A legal agreement to receive cash, goods, or
services now and pay for them in the future.
WHY USE CREDIT?
 Avoid paying cash for large outlays
 Meet financial emergency
 Convenience
 Investment Purposes
SOURCE OF CREDIT:
~ Individual Money Lenders
 Lend his surplus to those in need so that it
will bring income to him
~ Retail Stores
~ Pawnshops
~ Commercial Banks
 Engage in the grant of loans not only to
businessmen, but also to individuals for
personal purposes
~ Savings Bank
 Financial institution whose primary purpose
is accepting savings deposits and paying
interest on those deposits
~ Rural Bank
 Financial institutions that help rationalize
the developing regions or country to finance
their needs specially the projects regarding
agricultural progress
~ Development banks
 Financial institutions dedicated to fund new
and upcoming businesses and economic
development projects by providing equity
capital or loan.
~ Investment Bank
 Financial institutions that provide large
amounts of long-term fixed capital,
primarily established firms. It generally
takes an equity stake in the borrower firm to
exercise some influence on its direction and
operations
~ Savings and Loan Associations
 Associations that accept savings at interest
and lend money to savers chiefly for home
mortgage loans and may other related
services.
~ Finance Companies
 Installment Sales Finance Companies
 Consumer Finance Companies
 Commercial Finance Companies
~ Credit Unions
 Corporate organizations which lend savings
of members to some of the members of the
group
~ Insurance Companies
 Issues insurance contracts with those who
wish to provide for such contingencies like
death or fire. They receive premiums and
pay out money on the occurrence of the
particular contingencies.
~ Other Sources
 Social Security System
 Government Service Insurance System
 PAG – IBIG
 Other Government Agencies
  Check credit report regularly.
Types of Credit
 Credit Cards
 Installment Loans
 Service Credit
 Revolving Credit
 Student Loans
 IOU
 Single Payment Credit
Credit Cards
 Plastic cards with electronic information
that can be used by the holder to make
purchases or obtain cash advances using
a line of credit made available by the
card-issuing financial institution.
Installment Loan
CREDIT POLICIES
 A loan in which the amount of payment
 May vary from one business to another and the number of payments are
 Credit Terms predetermined, such as an automobile
 Terms and conditions which credit is loan.
granted.
 Credit Periods ◦ Fixed payment
 Amount of time within which the ◦ Set period of time
customer is expected to remit payment in
part or in full ◦ Set or varying interest rates
 Credit Limit ◦ Examples: Car loans and
 A limit with respect to the amount or mortgages
value that a customer can obtain from
the source. Revolving Credit
 A type of credit that does NOT have a
fixed number of payments, such as a
How to establish credit? credit card.
 Bank accounts ◦ No stated payoff time
 Employment history
 Residence history ◦ Limit to credit
 Utilities in borrower’s name
◦ Minimum monthly payments
 Department store or gas credit car
◦ Finance charges
How to maintain a good credit rating?
◦ Example: credit card
 Establish a good credit history.
 Pay monthly balance on time. Service Credit
 Use credit cards sparingly and stay within
 A member's earned service, prior
the limit.
service, and purchased service.
 Do not move balance to other cards.
Student Loans  Lowers credit score
 Difficulty getting a loan
 Loans offered to students to assist in
payment of the costs of professional
education. These loans usually charger
lower interest than other loans, and are
also usually issued by the government.
 Allows a person to finance their
education and defer payments until after
graduation.

Risks of Credit
 Interest
 Overspending
 Debt
 Identity Theft

Responsibilities of Credit
 Know the real cost of debt.
 Don’t use credit to live beyond your means.
 It is all about the details...read the fine print!
 Pay as much as you can, as early as you can.

Warning Signs of Credit Abuse

 Delinquent Payments
 Default Notices
 Repossession
 Collection Agencies
 Judgment Lien
 Garnishment

Financial Consequences of Debt

 Overspending
 Paying high interest rates