CHAPTER 9

CLASSES AND KINDS

OF CREDIT

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CREDIT
- the granting of a loan and creation
of debt. It is any form of deferred
payment.

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CREDIT
1. The classes and kinds of credit according to its
purpose are:

a. Commercial Credit
- which includes the promise to pay off businessmen
for the funds they borrowed in the purchase of goods
for productive and profitable ventures.

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b. Agricultural Credit
- which includes the promise to pay off farmers
and farm organization for the funds they
borrowed in the acquisition of farm inputs.

c. Investment Credit
- the promise to pay off individuals or business
firms for the loans they obtained in buying
capital goods. This is also called Industrial
Credit.
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d. Consumer Credit
- constitutes all the obligations to pay off people
for the money they borrowed for consumption
purposes.

e. Speculative Credit
- it is used for dealing in securities or goods with
the intention of making a profit through
favorable price changes.

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f. Export Credit
- it is always involved in all sorts of transactions
for which cash is not paid on or before
shipment of goods out of country.

g. Industrial Credit
- intended for financing the needs of industries
like logging, fishing, manufacturing and others,
and which involves big amounts of money.

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h. Real Estate Credit
- when credit is secured purposely for
construction, acquisition, expansion or
improvement of real estate properties.

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Short-term Credit
a loan which is payable in less than a year.

Long-term Credit
is a loan whose maturity is from 5 years or more.

Intermediate Credit
a loan which matures only in more than a year
but less than five years.
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LOANS
- whether secured or unsecured, are risk-inherent
although the former is less risky. Although
secured loans are backed by collateral, creditors
prefer to have cash rather than a property or asset
which still need to be converted into cash.

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Private sectors of the economy:
 Individuals
 Partnerships
 Corporations
 Other private institutions

Public credit includes:

National, Provincial, Municipal, and its instrumentalities.

Private credit includes:

All grants of credit to non-government.

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Types of Loans Granted by Banks
Demand or callable loan
does not have a definite maturity and
therefore, is subject to payment anytime the bank
deems it paya
Time loan
type of loan may be a short-term, medium-
term, or long-term which is payable at a future
time.
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Other Classifications of Bank loans:
1. According to purpose how credit is granted
a. Commercial or mercantile g. Direct loan
credit h. Discount loan and
b. Investment credit Rediscount loan
c. Industrial credit i. Overdraft line
d. Agricultural credit
e. Real Estate credit
f. Personal credit
2. According to the form on
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Other Classifications of Bank loans:
3. According to maturity
a. Short-term loan 5. According to release of the loan
b. Medium-term loan or f. Lump sum release
intermediate term g. Installment release as the
c. Long-term loan project progresses

4. According to security 6. According to manner of

d. Secured loan repayment
e. Unsecured loan or Character h. Lump sum basis
loan i. Installment basis
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Two Kinds of Credit According to the Allocation of Risk:
Secured Credit
this type of credit depends on some specific thing,
legally set aside to guarantee its payment. Banks require
collateral like real estate titles to assure payments of debt.

Unsecured Credit
this type of credit where the debt or assures payment
without particular asset pledged to secure the debt.

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“ THAT IN ALL THINGS, GOD MAY
BE GLORIFIED”

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