What is credit?

Ever borrow lunch money from a friend at school? How about a video game? Ever lend your favorite sweater to your best friend? These are all examples of credit. Any time you receive cash, goods, or services now and arrange to pay for them later, you are buying on credit. 

 

Some examples of credit in the marketplace are:

• Credit Cards

• Car Loans

• Home Loans

• Student Loans

 

In all of these types of credit,  you have the use of the money now and you are expected to pay it back later. There's a catch of course, you must repay it with interest. This extra fee is the reward the lender gets for trusting you to pay the money that you borrowed back later. 

 

There are several types of loans but we will focus on installment loans and revolving lines of credit. Installment loans are loans that must be paid back within a certain time period. Examples of these types of loans are car loans, home loans and student loans. All of these loans are secured by some type of asset the lender can claim as their own if you do not pay it back. 

 

 

Want to know more about credit cards? Click here.