Credits
Each of us has a dream: someone wants to live in a separate apartment, someone - to go on holiday abroad, someone - to buy a car, someone - to study at the University and someone simply wants to buy a washing vacuum cleaner or an expensive phone. And most of the dreams rest on one big and strong wall - lack of funds. Credit is the best solution in such situations.
Credit is the relationship between a lender (a creditor) and a borrower (a debtor) when the lender sends the borrower money or goods, and the borrower agrees to return at a certain time the same amount of money or an equal number of items of the same kind and quality.
Of course it is very good to take the thing you want at once-you have just seen it on the shop shelf and in several minutes you are already a happy owner. All you need to do is to sign several documents and of course make sure that you will be able to pay the credit back with all the credit costs that is all the additional money over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required by the lender as an integral part of the credit agreement. Other costs, such as those for credit insurance, may be optional. The borrower chooses whether or not they are included as part of the agreement.
There are different ways of charging interest and other charges but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR) that is derived from the pattern of advances and repayments made during the agreement. The goal of the APR calculation is to promote 'truth in lending', to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products.
Optional charges are not included in the APR calculation. So if there is a tick box on an application form asking if the consumer would like to take out payment insurance, then insurance costs will not be included in the APR calculation.
Trade credit
The word credit is used in commercial trade in the term "trade credit" to refer to the approval for delayed payments for purchased goods. Credit is sometimes not granted to a person who has financial instability or difficulty. Companies frequently offer credit to their customers as part of the terms of a purchase agreement.
Consumer credit
Consumer debt can be defined as 'money, goods or services provided to an individual in lieu of payment.' Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), retail loans (retail installment loans) and mortgages. This is a broad definition of consumer credit and corresponds with the Bank of England's definition of "Lending to individuals". Given the size and nature of the mortgage market, many observers classify mortgage lending as a separate category of personal borrowing, and consequently residential mortgages are excluded from some definitions of consumer credit - such as the one adopted by the Federal Reserve in the US.
The history of consumer credit
The history of credit around the world is fairly long, which can lead to the most distant years. Loans at interest and loans for urgent needs were known even in antiquity. However, lending in its current type of development was actually formed in the postwar period of the twentieth century. In the 70s the rate of population crediting in U.S. and in Europe increased in many times. It is normal because it was necessary to raise the standards of living and not many people had substantial savings in the postwar period. That is why borrowing from friends and acquaintances actively gave way to borrowings from banks at a greater or lesser percentage and with installment payments over several years.
Since then the system was constantly growing, rules were simplified, interest rates decreased making the credit programs more and more diverse and the procedure of obtaining and repaying simpler and more accessible.
With the increasing pace of lending in the United States there arouse need to create the legislative system that was able to regulate relations in the field of consumer credit. Thus a law on consumer credit was adopted in 1968 and was immediately accepted by many states. This law was intended to regulate relations between the creditor (bank) and the borrower, minimizing the risks of them both. The procedures of recoveries from the debtor were formed and also the required attributes of contractual agreements between the two sides of credit were specified.
Another document regulating the credit relations in the United States is the "Law on the rights of consumers." This law is designed to protect consumers from unfair bank frauds, from the collection of hidden interest and it also limits the maximum rate of remuneration for the bank lending services. The laws also protect the citizens of the United States from any form of discrimination in the credit granting.
