How Much Do You Know About Credit?

We have almost reached the end of our publications on financial education, as you will remember, we have been in charge of doing a thorough investigation of this great topic for a few weeks, and today is the penultimate installment, in which we will talk about “Credit”, a word with which most are familiar.

Let us broaden your outlook on this topic, let’s get started.

 

What is the credit?

Consumer credit

The word credit comes from the Latin “creditum”, a noun of the verb “credere” which means “to believe”. Credit means getting and using something you do not own, call money, cars, real estate, among others. To obtain a loan it is necessary to provide elements so that someone (a financial institution such as a bank, credit union or credit card company) evaluates you and gives you a loan according to your ability to pay. In return you promise to return the loan money plus an additional charge called “interest.”

Interest is expressed as a percentage of the amount lent by time units, which can be a month, two months, 180 days, a year, everything depends on the term agreed with the financial institution that has granted you the loan.

Understanding this we have different types of credit:

It is used to pay for a good or service, among the most common are:

  • Credit card
  • Payroll Credit
  • Personal credit

We also have the credits that are not so common, such as:

 

Mortgage credit

Mortgage credit

It helps you to acquire, build or remodel your house or apartment. This credit is long term, so it is important that you consider if you will be able to face the commitment of paying it during the time you hired it.

 

Credit business

It is used by people who want to start or expand their business. Some of these credits are accessible and low cost (microcredits) that help you buy machinery, work tools, buy merchandise or raw material, among others. The microcredits are financing for small amounts and easily accessible to the population.

 

Automotive credit

car loan

As the name implies, it is used to buy a new or used car, where the purchased good remains as a guarantee of payment. It is offered by banks, automotive and self-financing agencies at different terms.

 

Credit ABC

It is a credit granted by some financial institutions with the objective of buying durable consumer goods, with the exception of automobiles, in establishments that are usually linked to the institution. That is, it is a financing to buy in installments with payments that can be weekly, biweekly or monthly.

 

Revolving credit

Revolving credit

It is one that can be used repeatedly and withdraw funds up to an authorized limit, so the amount of available credit decreases each time it is borrowed and increases when it is paid.

Clients and credit card customers can have different ways to pay for the use of their line of credit. It is usually done in installments or in revolving mode and people who have this method can make a payment less than the total invoiced in the period (“Minimum Payment”).

The balance generates a new debt (revolving) to which the current interest rate for the period is applied and is added to the debt balance of this modality, corresponding to the previous periods if they exist and this debt can be paid by the client deferred in time.

 

Remember that whenever you make a decision to ask for a loan

Remember that whenever you make a decision to ask for a loan

you must take into account the power to pay for it, in a way that does not affect your personal economy and does not completely decapitalize you, in Mexico the delinquency rate is 7.2 %, so you should be very careful with this topic.

Each publication we unmask more financial education and everything that comprises, do not miss the last publication, next week and many more interesting publications like this.