BASICS OF CREDIT AND RELATED TERMS at IOB

What is BASICS OF CREDIT AND RELATED TERMS?

Credit means a loan, an agreement in which the lender (creditor) supplies the borrower with money, goods or services which is to be returned in future. Terms of credit apart from the rate of interest, collateral also includes documentation, mode of repayment.

Overview

The terms associated with a credit account. They include APR, credit limit, payment schedule, and fees (such as late-payment, over-limit, or annual fees.) The percentage of a consumer’s available credit that he or she has used. The credit utilization ratio is a key component of your credit score.

Frequently Asked Questions

Why are credit terms important?

The credit terms of your business should be designed to improve your cash flow. Some businesses allow customers to take a trade discount off the original sales price if the customer pays within a specified period of time, thus providing the customer an incentive to pay quickly and you a way to improve your cash flow.

What is credit process?

The process of assessing whether or not to lend to a particular entity is known as the credit process. It involves evaluating the mindset of the potential borrower, underwriting of the risk, the pricing of the instrument and the fit with the lenders portfolio.

What is an example of a credit?

Credit cards and home equity lines are examples of credit. Your bar tab is another form of credit. Not all lines of credit are alike.

What is the nature of credit?

Credit – an agreement to get money, goods, services now in exchange. for a promise to pay in the future. • One who lends money/provides credit – creditor. • One who borrows money/uses credit – debtor. • Creditors charge a fee for using their money – interest.

What are credit terms in accounting?

Credit terms are the payment terms mentioned on the invoice at the time of buying goods. It is an agreement between the buyer and seller about the timings and payment to be made for the goods bought on credit. It is also known as payment terms. Accounting solutions to help you manage your business just the way you want .

What are the 3 main types of credit?

There are three types of credit accounts: revolving, installment and open. One of the most common types of credit accounts, revolving credit is a line of credit that you can borrow from freely but that has a cap, known as a credit limit, on how much can be used at any given time.

What is the 5 C’s of credit?

One way to do this is by checking what’s called the five C’s of credit: character, capacity, capital, collateral and conditions. Understanding these criteria may help you boost your creditworthiness and qualify for credit.

What are instruments of credit?

A promissory note or other written evidence of a debt. Examples include bonds and loans. banking. finance. financial services.

What are advantages of credit?

Credit can be a powerful tool that helps you improve your finances, get access to better financial products, save money on interest, and can even save you from putting down a deposit opening utility or cell phone accounts.

What is debt factor?

Debt factoring involves a business selling their invoices to a third party at a discounted price in order to bypass the hefty waiting times which are associated with invoice payments.

What is credit period?

The credit period is the number of days that a customer is allowed to wait before paying an invoice. The concept is important because it indicates the amount of working capital that a business is willing to invest in its accounts receivable in order to generate sales.

What is credit life cycle?

These stages are; origination, analysis, approval, disbursement, administration & control and finally recovery (if need be). Only bad loans go into the recovery stage, otherwise the loan life cycle is meant to end with administration & control at which stage full repayment is achieved.

What is credit policy?

Simply put, a credit policy is a set of guidelines that sets credit and payment terms for customers and establishes a clear course of action for late payments.

What is pricing of loan?

Loan pricing is the process of determining the interest rate for granting a loan, typically as an interest spread (margin ) over the base rate , conducted by the bookrunners . The pricing of syndicated loans requires arrangers to evaluate the credit risk inherent in the loans and to gauge lender appetite for that risk.

What is expansion of credit?

6. The expansion of credit by the entire banking system, including the central bank, is the full increase in the money supply, i.e., the increase in demand deposits, plus the increase in currency outside banks (= the increase in earning assets of the entire system).