What is credit? A credit is a loan, a transfer by a creditor to a borrower of a certain amount of money (or other asset), with the condition of returning the entire amount in the future and for a fee. The credit is different from all other methods of temporary transfer of property. There are two main differences.
The first one is that the issuance of the credit involves the return of the entire credit to the lender in a predetermined time. The second one is that a fee is charged for the use of the credit, the amount of which is also pre-agreed. In most cases, credits are issued by banks and credit organizations that have received special permits. Such loans are regulated by law and are offered on the credit market.
Advertising of credit organizations often promises an individual approach to the borrower. This is only partly true. Credit offers are standardized and classified according to several criteria.
There are two distinctions by the purpose of lending. Target - loans issued to finance the specific needs of the recipient. Inappropriate - here the recipient is free in their expenses.
And there four distinctions by way of providing a return. Mortgages - having the obligatory transfer of the creditor as a pledge of valuable property or rights to it. Unsecured - in this case, the credit agreement is not secured by the borrower with property. Secured credits mean the appearance of third parties in a credit transaction who assume responsibility for the borrower’s compliance with payment obligations. Loans without guarantors - in this case, the borrower bears all liabilities on his own. Collateral, guarantee and other additional guarantees make the loan more reliable in the eyes of the lender. In this regard, there is one general pattern: the more secure the loan is, the lower the fee for it. This means that interest rates on secured loans are lower than on unsecured ones, the issuance of secured loans is easier and faster.
The parties to the credit transaction are the lender and the borrower. For legislation, both parties are on an equal footing. In practice, the owner of the funds determines the terms of the loan, and the borrower accepts or refuses them.
The topic of lending is not limited to the above. Many specific aspects, such as the form of a loan agreement, the fulfillment of obligations and guarantees, government intervention, etc., become the subject of separate consideration.