Classes and Kinds of Credit

• Personal Credit
• Mercantile Credit
• Bank Credit
• Industrial Credit
• Agricultural Credit
• Investment Credit
• Export Credit
• Public or Government Credit
Personal Credit
• A credit which a person possesses as an
individual, and which is founded on the
opinion entertained of his character and
business standing.
• It is used by individuals to buy consumer
goods intended to provide immediate
satisfaction to their wants and need.
• also called as CONSUMER CREDIT.
KINDS OF CONSUMER CREDIT

CHARGE ACCOUNT
• Charge account is one kind of personal or consumer
credit
• It is the oldest form of sales or purchase credit.
• Other names are " Open-book credit, open charge
account or 30-day credit.
ADVANTAGES OF CREDIT CHARGES
• It is a very convenient way of shopping.
• It eliminates the inconvenience as well as the
danger of carrying too much money.
• Charge accounts enable customers to buy goods
only at the time they want them.
• Charge account enables consumers to obtain goods
even before they have the money
• Charge accounts provide a valuable means of
reference in many business transaction.
DISADVANTAGE OF CREDIT CHARGES
• Charge account are undoubtedly a convenience,
and therein lies their grave danger.
USES OF CREDIT CARD
• To identify credit customers
• Tangible evidence of their charge account
• Color photograph encompassed in the
credit card
• They are marked as valid until a stated
date
KINDS OF CONSUMER CREDIT

INSTALLMENT CREDIT
• The most common type of consumer credit
today is installment sales or purchase credit.
• Individual term as "Buying on time"
• PRECAUTIONS IN BUYING ON INSTALLMENT:
Truth on the Lending Act is purposely enacted in
order to protect a prospective buyer in
installment with respect to the amount that he
must pay.
• IMPORTANT PRECAUTIONS:
– Never allow yourself to be rushed or
pressured into signing a contract until you
became conversant with all the facts.
– Always insist for an extra copy of the
contract.
– Never sign any contract before all the blank
spaces are filled in.
– Read very carefully what you sign. Read
again after signing.
 INSTALLMENT CREDIT CHARGE ACCOUNT
• Installment credit is largely confined to • purchases on charge account consist of
durable consumer goods. non-durable consumer items.
• The title to goods purchased on the • On the other hand, title passes
installment plan does not pass to the immediately to the customer covering
buyers until the last installment payment goods bought on charge account.
has been made.
• In the event that the customer fails to
meet his payments on the installment
plan, the seller may take possession or
"repossession" of the goods.
• Goods on the installment plan are paid
for by means of a series of equal
payments.
• Customers who buy on the installment
plan always have to pay a "carrying
charge" which actually includes interest.
• Goods brought on installment basis
generally, on account of the considerable
amount involved, are covered by a
written contract of sale, which is not so in
the case of charge account.
KINDS OF CONSUMER CREDIT

PERSONAL LOAN
– Most lenders ask a borrower to sign a promissory
note.
– The borrower who sign the note is the maker
– A person with a good credit standing may be able
to borrow on his signature alone is called
signature or character loan.
– Anyone who sign a note in addition to the
borrower to the borrower is called a signer.
– A co-signer is responsible for paying the
debt should the borrower fail to do so.
– Anything used as security for a loan is called
collateral
– A loan backed by security is called a secured
loan.
– Endorser - this person becomes responsible
for the payment of the loan if the borrower
fails to pay.
• Sale of Goods on Credit to the Poor
– With the mass of people as the main target,
through the media of television, radio and
newspapers, messages urging people to BUY NOW
and PAY LATER under the "easy payments and "no
money down" schemes have become common
place.
– This has lured some of our poor to buy goods with
collection being made on a number of bases--
daily, weekly, twice a month or once a month.
Mercantile Credit
• is equally known as COMMERCIAL CREDIT
• Sometimes, it is also called TRADE CREDIT
• It is granted by manufacturers, wholesalers,
and jobbers as an incident of sale.
• Unlike consumer credit which is intended to
facilitate the process of consumption, this kind
of credit is designated to INCREASE THE
VOLUME OF SALES
• By its very nature, MERCANTILE CREDIT
represents an advance to the dealer to be paid
in whole or in part from the funds derived
from the sale of goods entrusted to him.
Mercantile and Retail Credit
• Mercantile Credit: used in financing
producers and dealers rather than the
ultimate consumers; this is essential to the
manufacturer, the jobber, the wholesaler,
and the retailer
• Retail Credit: used by a consumer to
finance purchases which he cannot pay for
until some later date; confined to persons
who are suffering from financial
difficulties and thus are not in a position
to pay cash at the time of purchase;
convenient form of savings, for it leaves
invested funds undisturbed.
• Charge Accounts: such accounts eliminate
the necessity of securing cash in advance
and carrying around cash when they
desire to do shopping.
Small Market Vendors’ Loans
• Known as that has been introduced in this
country through the Philippine National Bank
• The new lending program for the vendors is
made available as additional source of capital
of the market vendors
• The loan may be availed of only by legitimate
market vendors and stall owners
• To qualify, he must have a license to operate a
market stall, belong to a market vendors’
association and be a market vendor stall
owner for at least six months immediately
before the filing of the application
 Raising Money on Accounts
Receivable
• The company may be in financial difficulties and
that it is in urgent need for more money
• The company may wish to expand its business to
a greater extent than its line of credit permits
• A new business may find this the most expedient
method of obtaining credit
• An old, established business may borrow in this
way in its desire to discount its current
purchases.
Non-Notification vs Notification
Plan
• Non-Notification Plan
– The borrower collects his own accounts as usual
turning the check or other remittance over to the
credit company.
• Notification Plan
– Debtors are notified of the assignment, and
payment is made direct to the finance
corporation.
Bank Credit
• Comprises the aggregate of all funds advanced
in various ways by banks to other members of
the community
 Commercial Loan
• Refers to credit that is guaranteed for a short
period to help out the borrower with his
temporary working capital needs.
• A debt-based funding arrangement that a
business can set up with a financial institution.
The proceeds of commercial loans may be
used to fund large capital expenditures and/or
operations that a business may otherwise be
unable to afford.
• Commercial loans can help balance the ebb
and flow of business cycles. Because of the
cyclical nature of business, there will be times
that you may not have enough money to meet
your businesses needs or goals. One
commonly used option to obtain these funds
is by securing a commercial loan.
Business Cycle
 Agricultural Loan
• The usual purpose is to finance the
improvement, planting, and harvesting of
agricultural products.
 Industrial Loan
• The bulk of industrial loans availed of by
manufacturers and public utility firms in the
Philippines.
 Real Estate Loan
• Loans granted to finance the acquisition or
improvement of real estate, either urban or
rural.
 Banks stay heavy on real
03192017 estate loans
 Personal Loan
• This is generally for consumption purposes
• This loan may be used to meet serious
personal obligations, such as those arising
from illness, or to buy appliances.
 Packing Credit Advances
• Loans to exporters to finance the processing
of export goods prior to their being shipped to
the foreign buyer.
 Trust Receipts
• Advances made by a bank in behalf of an
importer if, on due date, the importer is
unable to pay for the goods or raw materials
imported.
Investment Credit
• Consists of advances that have been made to
a business enterprise to enable it to purchase
or construct the necessary plant and
equipment.
• Obtained through the issuance of relatively
long-term obligations in the form of promises
to pay at a future time in exchange for the
money which is borrowed
• This obligations take the form of bonds and
promissory notes
• These are required for 3 purposes:
– Meet the needs of business enterprises for fixed
and working capital
– Meet the needs of national, provincial, and local
governments that wish to undertake projects
requiring an expenditure in excess of their current
revenue
– For the purchase and improvement of real estate
Agricultural Credit
• Bank on Wheels is the important innovation
in the banking system in this country; which
helped to implement the Masagana ‘99
program.
 Masagana 99

• Promoted by Marcos as a way to for the Philippines to

achieve rice self-sufficiency, the program achieved initial
success by encouraging farmers to plant new “Miracle
Rice” (IR8) variety of rice which the International Rice
Research Institute had been developing since 1962, during
the administration of President Carlos P. Garcia. The
program was launched at the time the country was
experiencing a shortage of supply on rice and was credited
for the launching of the Philippine Green Revolution in
1973 which allowed the country to export rice to other
Asian countries.
• It is the first extensive rice production
program that addressed the problems of the
rice farmer: access to improved technology,
credit, price and high cost of fertilizers. It has
four elements: credit, training and supervision
for the adoption of the new package of
technology, price support for rice and
provision of low cost fertilizer.
 Farmers now get easy access
06252017 to credit – DA
• The Department of Agriculture (DA) has
officially launched its easy access loan
program starting in Surigao del Norte, aimed
at improving the country’s lending for the
agriculture sector.
• Through its Production Loan Easy Access
(PLEA), the DA issued the first batch of loans
to 247 farmers in Malimono in Surigao del
Norte to increase agriculture productivity and
address rural poverty.
• The initial batch of farmers has been issued
their Juan Magsasaka ID card, which will serve
as a “virtual credit,” and will allow them to
borrow from P5,000 to P25,000 without any
collateral and a six percent annual interest
payable in at least two years.
• The lending program will be available through
local cooperatives and rural banks and the
maturity will depend on the kind of
agricultural commodity.
• For cash crops like rice, corn and vegetables,
the loan maturity will be two years while high
value crops like coffee, cacao, coconut and
banana, the loan maturity will be between
five and eight years.

Financing institutions have always

considered farmers and fishermen as
unreliable borrowers. 