CREDIT

 WHAT IS CREDIT?

Credit refers to the ability to borrow money or access goods and services with the promise to repay the lender or provider at a later date, often with interest or additional fees. 

It is a financial arrangement that allows individuals, businesses, and governments to obtain funds they may not have immediately available, enabling them to make purchases, invest, or cover expenses.

BASIS FOR CREDIT

1. Buyer's Income Level

2. The integrity of the person

3. Availability of Guarantors

4. Availability of Collaterals

5. Present employment status 

6. Time of repayment

ADVANTAGES OF CREDIT SALES

1. it increases sales

2. It increases profit

3. It increases rate of stock turnover

4. It reduces the tie-down of stocks

5. It allows enjoyment of goods without immediate payment

6. It encourages bulk purchases 

DISADVANTAGES OF CREDIT SALES

1. It leads to high prices of goods 

2. consumers can be tempted to overbuy 

3. It involves a lot of record-keeping 

4. It sometimes ties capital down 

5. It can lead to business liquidation 

6. It poses problems of Non-repayment

7. It can lead to court action. 

TYPES OF CREDIT

1. CONSUMER CREDIT

2. BUSINESS CREDIT 

CONSUMER CREDIT 

Consumer credit refers to the various forms of credit that individuals use for personal, non-business-related expenses. These forms of credit allow consumers to borrow money or access goods and services and repay them over time. 

Here are some examples of consumer credit:

EXAMPLES 

1. CREDIT CARD 

2. LOANS 

3. MORTGAGE LOANS 

4. OVERDRAFTS

5. STUDENT LOANS 

6. Peer-to-Peer (P2P) Lending

7. Payday Loans - online apps

8. Deferred payment

BUSINESS CREDIT 

1. HIRE PURCHASE 

2. DEBT FACTORING 

3. HIRING AND LEASING 

4. BUSINESS LOANS 

5. TRADE CREDIT 

6. CROWD FUNDING

7. GOVERNMENT LOANS

8. EQUIPMENT FINANCING 

HIRE PURCHASE

Hire purchase (HP) is a financial arrangement that allows individuals or businesses to acquire assets such as equipment, vehicles, or machinery by making an initial down payment (or deposit) and then paying the remaining cost, plus interest, over a fixed period of time. It's a common method of financing the purchase of assets without having to make a substantial upfront payment.

Here's how hire purchase works:

Selection of Asset: 

The buyer selects the asset they want to purchase, such as a car, industrial machinery, or office equipment.

Down Payment: 

The buyer typically makes an initial down payment, which is a percentage of the total purchase price. This down payment can vary depending on the terms of the hire purchase agreement.

Fixed Repayment Schedule: 

The remaining cost of the asset, plus interest, is divided into equal installments over a fixed term. The buyer agrees to make regular payments (often monthly) to the seller or financing company.

Ownership Transfer: 

While the buyer has immediate use of the asset, legal ownership usually remains with the seller or financing company until the final installment is paid. Once all payments are made, ownership of the asset is transferred to the buyer.

Interest Charges: 

The interest rate applied to hire purchase agreements can vary. It's essential for buyers to understand the interest rate and how it affects the total cost of the asset.

Default and Repossession: 

If the buyer fails to make the agreed-upon payments, the seller or financing company may have the right to repossess the asset as it is considered collateral for the loan.

Hire purchase is often used for assets that have a long lifespan and can be expensive, such as vehicles, heavy machinery, or industrial equipment. It offers several advantages, including the ability to acquire needed assets with minimal upfront costs, fixed and predictable repayment schedules, and the potential for tax benefits. However, buyers should carefully review the terms and interest rates of hire purchase agreements to ensure they understand the financial implications and obligations involved.