Consumer credit is considered an important part of modern society. List and explain TWO types of consumer credit. What are some examples of each?
The TWO types of consumer credit are Closed-end and Open-end credit.
Closed-end credit A one time loan that is repaid in equal payments by the end of the term. The loan is repaid in full amount by the end of the term, by a specific date. Interest is charged on the amount borrowed and it usually is a specific amount that remains the same for the term of the loan. This kind of credit if used mortgages, car loans and and installment loans. Sometimes the seller holds the title (like a car or mortgage) or ownership of the item until the loan is paid off. One example of closed-end credit loans is an …show more content…
First, is capital, capital is the assets that you currently own. Lenders feel the more assets you have the better, beccause assests can be liquidated to pay back loans. If needed. Second, is capacity, capacity is your perceived ability to pay back the credit or loan. To determine whether your income will be enough to pay your bills every month lenders use a debt ratio formula. Debt ratio measures a borrower's ability to repay a loan by comparing income against recurring debts. Third, is collateral, collateral are assets you are willing to use to back up the loan you are applying for. If, you are willing to put items up for collateral lenders feel you will do what it takes to pay their loan so you don't lose your item. Forth is character, character refers to a borrower's reputation. Lenders want to know if you are a good person. In addition, lenders want to see your payment history and experience on other accounts you may have. Last, is conditions, conditions are a measurement of the of the overall economic environment. Also, lenders might want to know how you plan to use the loan. By using the 5 C's banks and other financial institutions evaluate borrowers, to determine whether or not to extend a loan to the
The TWO types of consumer credit are Closed-end and Open-end credit.
Closed-end credit A one time loan that is repaid in equal payments by the end of the term. The loan is repaid in full amount by the end of the term, by a specific date. Interest is charged on the amount borrowed and it usually is a specific amount that remains the same for the term of the loan. This kind of credit if used mortgages, car loans and and installment loans. Sometimes the seller holds the title (like a car or mortgage) or ownership of the item until the loan is paid off. One example of closed-end credit loans is an …show more content…
First, is capital, capital is the assets that you currently own. Lenders feel the more assets you have the better, beccause assests can be liquidated to pay back loans. If needed. Second, is capacity, capacity is your perceived ability to pay back the credit or loan. To determine whether your income will be enough to pay your bills every month lenders use a debt ratio formula. Debt ratio measures a borrower's ability to repay a loan by comparing income against recurring debts. Third, is collateral, collateral are assets you are willing to use to back up the loan you are applying for. If, you are willing to put items up for collateral lenders feel you will do what it takes to pay their loan so you don't lose your item. Forth is character, character refers to a borrower's reputation. Lenders want to know if you are a good person. In addition, lenders want to see your payment history and experience on other accounts you may have. Last, is conditions, conditions are a measurement of the of the overall economic environment. Also, lenders might want to know how you plan to use the loan. By using the 5 C's banks and other financial institutions evaluate borrowers, to determine whether or not to extend a loan to the