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Enumerate the nature of credit

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Jose Ignacio S. Jardin
BSBA-3B
Monetary Policy and Central Banking
Questions:
Enumerate the nature of credit?
There are three main types of credit: installment credit, revolving credit, and open credit.
Each of these is borrowed and repaid with a different structure.
Installment credit: Installment credit is a 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. Once an installment credit loan is paid off in its entirety, the account is
considered closed. Examples of installment credit accounts include mortgages, auto
loans, personal loans, and student loans.
Revolving credit: Revolving credit accounts allow you to repeatedly borrow and repay
amounts from a single line of credit up to a maximum limit. You’re in control over how
much you borrow (and ultimately need to pay back). Interest is charged on any balance
remaining after each statement’s due date, so it’s possible to avoid ever paying interest if
you pay your balance in full each month.
Open credit: Open credit is unique in that monthly payments vary, and balances are due in
full at the end of each billing cycle. Your electricity bill is a great example of open credit;
the amount due depends on how much electricity you used that month.
What are the characteristics of credit?
Character
Although it's called character, the first C more specifically refers to credit history, which
is a borrower's reputation or track record for repaying debts.
Capacity
Capacity measures the borrower's ability to repay a loan by comparing income against
recurring debts and assessing the borrower's debt-to-income (DTI) ratio.

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Capital
Lenders also consider any capital the borrower puts toward a potential investment. A
large contribution by the borrower decreases the chance of default.
Collateral
Collateral can help a borrower secure loans. It assures the lender than if the borrower
defaults on the loan, the lender can get something back by repossessing the collateral.
Conditions
In addition to examining income, lenders look at the length of time an applicant has been
employed at their current job and future job stability.
What are the foundations of credit?
The five C's of credit is a system used by lenders to gauge the creditworthiness of
potential borrowers. The system weighs five characteristics of the borrower and
conditions of the loan, attempting to estimate the chance of default and, consequently, the
risk of a financial loss for the lender. The five-C's-of-credit method of evaluating a
borrower incorporates both qualitative and quantitative measures. Lenders may look at a
borrower's credit reports, credit scores, income statements, and other documents
relevant to the borrower's financial situation.
Classifications of credit?
Public and Private - based on the nature of the recipient of credit. Public credit - includes
all grants of credit to governments: national, provincial, municipal, and its
instrumentalities. Private credit - refers to all grants of credit to non - governments:
individuals, partnerships, corporations, and other private institutions.
What is consumers’ credit?
A consumer credit system allows consumers to borrow money or incur debt, and to defer
repayment of that money over time. Having credit enables consumers to buy goods or
assets without having to pay for them in cash at the time of purchase.
What is under installment account?
Answer: Installment accounts are those you pay overtime, paying a set amount each
month. Revolving account payments vary by how much credit you use.

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Jose Ignacio S. Jardin BSBA-3B Monetary Policy and Central Banking Questions: Enumerate the nature of credit? There are three main types of credit: installment credit, revolving credit, and open credit. Each of these is borrowed and repaid with a different structure. Installment credit: Installment credit is a 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. Once an installment credit loan is paid off in its entirety, the account is considered closed. Examples of installment credit accounts include mortgages, auto loans, personal loans, and student loans. Revolving credit: Revolving credit accounts allow you to repeatedly borrow and repay amounts from a single line of credit up to a maximum limit. You’re in control over how much you borrow (and ultimately need to pay back). Interest is charged on any balance remaining after each statement’s due date, so it’s possible to avoid ever paying interest if you pay your balance in full each month. Open credit: Open credit is unique in that monthly payments vary, and balances are due in full at the end of each billing cycle. Your elec ...
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