The financial term “credit” is very often used nowadays. These days a lot of people talk about it and even use it in practice. It is used in almost all financial systems, so that we can talk about so many different types of credit. There are two parties in the credit relationship. The first one is called creditor, or just lender, and the other one – debtor, or borrower.
There are several basic forms of credit: service credit, installment credit, loans and credit cards.
Service credit is a financial operation which we use to pay our monthly taxes such as telephone, electricity, water, etc. This is the most common credit in finance and social area and, for almost all people, it is the most important. One of the most significant characteristics of this type of credit is the late charge that you must pay if you delay your payment.
Another type is the installment credit in this case you can buy something (the most common for this type is furniture, cars, etc.) and pay it later. The plan of this credit consists of signing a contract in which you agree to pay a deposit and then, in a distant period, pay the other part of the cost.
Loans are another common used type of credit. With that kind of bank operation you can borrow money in large or small amounts. You can turn the money back in two ways – in several payments for equal periods, or the full sum in one time.
The last sort of credit is credit card. It’s a combination of the other three types of credits which we informed you about. You can use it to pay for something in a store or bank, and that is the way you actually get the loan. Then, at the end of the period (which is usually a month), you have to pay the sum, most commonly in full size. Some situations in which we use credit cards are renting a car, booking a hotel room, paying for emergency or doctor services, when we do not have enough to pay in cash, etc.
Here is the point to show the difference between credit card and debit card. Although it is used as a credit card, the debit one is used for checking your account and connecting with it at an Automatic Teller Machine (ATM) or a cash register in a store where you purchase something.