WEEK 5

SOURCES OF CREDIT

1. PRIVATE INDIVIDUALS
2. RETAIL STORES
3. PAWNSHOPS
4. SAVINGS & MORTGAGE BANKS
5. MUTUAL SAVINGS BANKS
6. SAVINGS AND LOAN ASSOCIATIONS
7. CREDIT UNIONS
8. INSURANCE COMPANIES
9. PENSION FUNDS
10. BOND AND MONEY MARKET FUNDS
11. SALES FINANCE COMPANIES
12. BANKS
 SOURCES OF CREDIT

1. PRIVATE INDIVIDUALS

There are the individual money

lenders who loan surplus
income to those in immediate
need of cash.
 SOURCES OF CREDIT

1. PRIVATE INDIVIDUALS

They usually do not require collateral but

charge higher interest rates.
They are sometimes called “loan sharks” or
“usurers” because they prescribe rate of 5/6 or
over and above what the law provides.
 SOURCES OF CREDIT

2. RETAIL STORES

These outlets offer merchandise form of

consumer credit.
It offers a book account “palista” for
customers of the store and collection period
is during paydays of the month.
 SOURCES OF CREDIT

3. PAWNSHOPS

Pawnbrokers extend loans in exchange for a

collateral, a pawn.
Pawns are personal property of movable
assets.
 SOURCES OF CREDIT

3. PAWNSHOPS

Pawners are given 90 days grace period from

the date of maturity of the loan within
which to redeem the pawn by paying the
principal amount of the loan plus interest
that accrued thereon.
 SOURCES OF CREDIT

3. PAWNSHOPS

The pawnbroker shall duly notify the

pawner in writing that the pawn shall be
sold or otherwise disposed of through
auction.
 SOURCES OF CREDIT

3. PAWNSHOPS
A pawnshop is a store or form of business that
lends money to consumers who carry valuable
items to be pawned.
These valuables are referred to as “collateral.” The
precious asset will only be returned from the
pawnbroker after the loaned money and interest
have been repaid.
 SOURCES OF CREDIT

3. PAWNSHOPS
There are also three types of people who usually
transact at pawnshops, including the following:

1. People who need quick cash and are willing to

pawn their precious item as collateral
2. People who are trading their used items
3. People who buy new or used merchandise
 SOURCES OF CREDIT

4. SAVINGS AND MORTGAGE BANKS

Any corporation organized for the purpose of
accumulating the savings of depositors and
investing them, together with its capital, in readily
marketable bonds and debt securities; commercial
papers and accounts receivables; drafts, bills of
exchange, acceptances, or notes arising out of
commercial transaction or in loans secured by
bonds, mortgages on real estate and insured
 SOURCES OF CREDIT

4. SAVINGS AND MORTGAGE BANKS

improvements thereon, and other forms of security
or unsecured, and financing for home building and
home development; and such other investments
and loans which the Monetary Board may
determine as necessary in the furtherance of the
national economic objectives
 SOURCES OF CREDIT

5. MUTUAL SAVINGS BANKS

These are mutually owned by their depositors and
either pay out their profit to savers in interest
dividends or retail them as a reserve cushion
against loss
 SOURCES OF CREDIT

5. MUTUAL SAVINGS BANKS

They sell interest-bearing savings deposits to the
public and acquire assets largely in the form of
urban residential mortgage.
 SOURCES OF CREDIT

6. SAVINGS AND LOAN ASSOCIATIONS

These are organized to obtain funds for home
construction, and majority of their savings are
placed in home mortgages.
There are stockholders in these organizations who
receive dividends over and above what is paid out
to savers.
 SOURCES OF CREDIT

6. SAVINGS AND LOAN ASSOCIATIONS

These are sometimes called building and loan
associations which sell financial service to the
public and invest funds acquired.
 SOURCES OF CREDIT

7. CREDIT UNIONS
These are mutual institutions whose membership
have some common bond, such as employment in
lending institutions organized around some
common bond of membership, typically a common
employer.
 SOURCES OF CREDIT

7. CREDIT UNIONS
They accept deposits, on which they pay interest or
dividends only from their membership and small
loans only to their members, usually for the
purpose of buying consumer-durable goods.
 SOURCES OF CREDIT

8. INSURANCE COMPANIES
Thee companies are both mutual and stockholder-
owned.
They receive funds from policy holders and place
the funds in loans, both individually to home buyers
and other small borrowers and also through
security purchases in the organized money and
capital markets.
 SOURCES OF CREDIT

8. INSURANCE COMPANIES
Service offered to the public is financial protection
against life’s various misfortunes.
To build up huge amounts of funds, they have to
place part of their assets in investments.
 SOURCES OF CREDIT

9. PENSION FUNDS
The procedure for pension funds is the reverse of
that for insurance companies.
The person who lives the longest beyond
retirement receives the highest return in the
investment, through the periodic pension checks he
receives.
 SOURCES OF CREDIT

9. PENSION FUNDS
Most corporation of any size offer their employees
a retirement plan as a benefit of employment.
The financial service offered the public is, of course,
the accumulation the investment of employer an
employee contributions of these funds.
 SOURCES OF CREDIT

9. PENSION FUNDS
Pension funds can b e insured or non-insured.
Insured pension funds are managed by insurance
companies, and the investment of these funds is
frequently subject to the same governmental
restrictions like insurance contracts.
Non-insured funds have wider range in the types of
assets they may acquire.
 SOURCES OF CREDIT

10. BOND AND MONEY MARKET FUNDS

These are companies which accept savings and
place them in a pool for investments that allows
diversification of assets.
 SOURCES OF CREDIT

11. SALES FINANCE COMPANIES

These include sales and personal finance companies
which make loans to individuals for the purpose of
buying automobiles.
They obtain working capital from their own
stockholders, loans from commercial banks and
those obtained in sales-of securities on the
organized money and capital markets.
 SOURCES OF CREDIT

11. SALES FINANCE COMPANIES

They do not lend directly to consumer or companies
but they buy the sales contracts, or installment
contracts from the retailer or dealer.
 SOURCES OF CREDIT

12. BANKS
These are commercial banks, savings banks, rural,
development and investment banks.
They approve loans based on collateral presented.
Collaterals are title for real property or securities.
In the absence of available pledge, a comaker is
required, serving as guarantor for the loans.
 SOURCES OF CREDIT

12. BANKS
They are major sources of credit particularly for
businessmen and for the development of certain
industries.

Commercial bank is any corporation which accepts

or creates demand deposits subject to withdrawal
by check.
 SOURCES OF CREDIT

Commercial banks
These institutions also accept drafts and issues
letters of credit, by discounting and negotiating
promissory notes, drafts, bills of exchange, and
other evidences of debts; by receiving deposits by
buying and selling foreign exchange and gold and
silver bullion, and by lending money against
personal security or against securities consisting of
personal property or mortgages on improved real
estate and the insured improvements thereon.
 Lending Act

Is an act designed to protect consumers

against unfair billing practices of people who
extend credit to a purchaser of goods on
installment basis.
 Lending Act

1. The cash price of the property to be

serviced or acquired.
2. The down payment if any, or the trade-in
price.
3. The difference between the amounts
under 1 and 2.
 Lending Act

4. The charges individually itemized, which

are paid or to be paid in connection with
the transaction and which are not
incidental to the extension of credit.
5. The total amount to be financed.
 Lending Act

6. The finance charged expressed in terms of

pesos.
7. The percentage that the finance charge
bears to the total amount to be financed
which is expressed as a simple annual rate
on the outstanding unpaid balance of the
obligation.