The Notion of Credit
A process of exchange of a product, a service, or cash for a promise to pay it back at an agreed future date is made possible by the notion of credit. In a credit exchange, the borrower is called the debtor while the lender is called the creditor.
The debtor is tasked to pay the money with the application of a certain interest which is a calculated percentage added to the total amount of borrowed monetary value. To regulate the system of credit, laws have been passed to ensure the safety and stability of any credit system. This regulation required creditors to indicate in a clear manner and oftentimes in a black and white form, the interest, finance charge, and other fees that are involved in the credit process.
In the credit process, the creditor may require the debtor some form of security or collateral before the credit is granted. The collateral can be any property such as a real property or a car that the creditor can take away from the debtor in case payments of the credit are not made. The debtor’s inability to make payments is called a default. If the debtor defaults, the creditor can obtain the collateral through by taking some legal measures.
Credit agencies can extend credit to a business and this is called “mercantile credit”. Manufacturers and wholesalers are oftentimes able to produce and distribute products on a regular basis with the aid of a credit. Banks also provide this kind of credit which comes in the form of business loans.