Credits definition and types

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What better way to start in the world of finance than by defining a series of basic concepts so as not to get lost in this world of figures.

What is a Credit? We can define it in the easiest and simplest way; It is a financial operation where a person lends a certain amount of money to another person, who agrees to return the amount borrowed plus interest, which occurs during the period of time in which the credit is in force.

The people involved in this operation are called the Creditor (the person who gives the loan) and the Debtor (the person requesting the loan). Interest is the index that is used to calculate the profitability of credit, savings or investments depending on the type of financial operation that is being carried out.

Knowing these terms it is easier to enter the world of finance. However, credits vary according to the purpose of their use and the conditions in which they are generated.
There are type credits:

Automotive: Aimed at the acquisition of vehicles.

For consumption: Aimed at the acquisition of goods or the cancellation of debts for services; They are usually short term in periods of 1 to 4 years, these could be defined as short or medium term.

Commercial: Aimed at companies of any size, they are usually requested to acquire goods such as the purchase of new machinery or extensions that will promote the evolution of the economic growth of the company. This style of loans is also often requested to refinance debts or cancel them in their entirety.

Consolidated: In summary, this type of credit brings together the characteristics of all types of credit in one. It has several benefits, among them the most outstanding one is that the creditor will pay lower fees than having several separate credits.

Educational: Aimed at students in order to pay for their studies, the interests that are applied to this type of loans are usually low and very long terms, to provide greater ease of payment.

Mortgages: These have been very popular, but in reality the definition of this type of credit is; Delivery of money by a bank to an individual for the purchase of property, land, the construction of houses, offices or others. The guarantee that this type of credit requires is on the property that is being acquired or refinanced on its value at the time of valuation by the bank. The terms for payments are usually medium or long term, between 8 years to 20.

Personal: Aimed at the average citizen for the purchase of property that is not real estate, the terms that are usually given in this type of credit is short to medium, that is, between 1 to 6 years.

Mini-credits: They are usually of a low amount and short terms that do not exceed 30 days; They are easy to request and your approval or denial is quick response.

By being clear about the types of credits that exist, it is easier to decide which one to apply for, since there is detailed information and you can evaluate which one is more beneficial, depending on the purpose for which the credit money will be used.

Credits should be seen as the option to evolution, growth; The opportunity to start a new business or the expansion of a project that is already in operation are just some of the options that loans can offer you.

As we have explained previously, there are several types of credits and surely there is one that suits your needs, it is just a matter of researching and taking the next step, choosing the credit you need to start a new stage of your life.

about the author

Maria Solis Burley

Credit consultant in Spain. Financial Analyst at Crédito Victoria.
LAST UPDATED: September 20, 2016