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What is Credit? Short Review

Tue 6th, Dec 2016

 A credit is the signed agreement between a borrower that receives something valuable instantly and is obliged to repay that debt to the lender over a pre-determined time period, usually implying interest. It’s hard to accurately place the notion of credit in time since all sort of such contracts have been identified in old writings and logs but it is believed that the whole organized process started along with the appearance of the banks.

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Types of Credit

Credits come in all sort of different shapes and sizes and the most frequent ones are represented by loans issued by banks. There are a lot of different types of loans that are mostly defined by the reason behind the borrowing of money. According to cash24, the most widespread types of credit are:

  • Student loans – this is a credit type that appeals to students in order to pay for the costs of education. If we’re talking about the US, you have federal student loans and private loans. The main difference between the two stands in the interest that is applied.

  • Mortgages – a mortgage is a type of loan given by banks with the express intention of buying a house. It gets its name from the fact that it is tied to the house and any issues with the payment of a mortgage loan can result in losing the house you bought. And even though they have one of the lowers interest rate, there are a lot of mortgages that under-perform.

  •   Auto Loans – just as the name suggests, this type of credit is issued by the banks for those that want to by a new vehicle but can’t really afford this action. Nowadays the car dealers are able to issue loans of their own, but you usually have a higher interest rate.