Question

Explain any three terms of Credit.

Explain the three important ‘terms of Credit’.

Explain the different terms of credit.

Answer 1

Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit. The terms of credit vary substantially from one credit arrangement to another. They may vary depending on the nature of the lender and the borrower. The next section will provide examples of the varying terms of credit in different credit arrangements. 

1. Interest rates: The interest rate is the rate elicited when borrowing and lending loans the interest rate is stated in the document.
2. Collateral: It is an asset that the borrower owns, such as a house, shop, or property. It is used to borrow money. It is a guarantee to a lender that the loan will be repaid.
3. Documentation required: Before lending money, lenders review all documents related to the borrower’s employment history and income.
4. Mode of Payment: It is the time frame for repaying the loan. Long-term loans can be repaid in 12 months, 6 months, or monthly instalments via cash, check, or other means.