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Monetary Credit

The document discusses the credit system, including the purpose and foundations of credit. It defines credit as the ability to obtain goods or services in exchange for a promise to pay in the future, representing both power and responsibility. It outlines different types of credit according to user (e.g. consumer, retail), purpose (e.g. agricultural, export), maturity (short, medium, long term), and classes (e.g. charge accounts, installment plans). Advantages and disadvantages of different credit types are provided. Laws around truth in lending are also summarized.

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205 views31 pages

Monetary Credit

The document discusses the credit system, including the purpose and foundations of credit. It defines credit as the ability to obtain goods or services in exchange for a promise to pay in the future, representing both power and responsibility. It outlines different types of credit according to user (e.g. consumer, retail), purpose (e.g. agricultural, export), maturity (short, medium, long term), and classes (e.g. charge accounts, installment plans). Advantages and disadvantages of different credit types are provided. Laws around truth in lending are also summarized.

Uploaded by

martin ngipol
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The CREDIT SYSTEM

CREDIT

• Purpose: People buy things that they cannot afford to pay for at the
moment , but probably can pay for in the long run.
FOUNDATIONS OF A CREDIT SYSTEM
• Creditor must have absolute confidence in the personal character and
ability and willingness of the debtor to settle the obligation. Creditum
comes from the Greek word “creditum”which means trust.
• Proper facilities like documents to be used and sources of credit
information.
• The money must be stable. When the depositors become uncertain to
the wide fluctuations of the money, they are reluctant to deposit their
money hence have no much to extend as loans.
• The government must stand raeady to assist the creditor for the
enforcement of his rights.
• “No individual shall be imprisoned for non-payment of debts
nevertheless our courts can order properties of debtors attached for
their refusal to pay and have the properties sold at public auction.
NATURE OF CREDIT
• CREDIT is defined as the ability to obtain a thing of value in exchange
for a promise to pay with money or something equally satisfactorily to
the seller at some future time represents both as a POWER and
RESPONSIBILITY on the part of the debtor.
CHARACTERISTICS OF CREDIT
• Trust. ( it was already explained)
• Credit is elastic. It could be expanded to increase the volume of
production and contracted to prevent further loses.
• Credit creates creditor-debtor relationship.
• Credit involves time or futurity.
CLASSES AND KINDS OF CREDIT
• KINDS OF CREDIT ACCDNG TO USER:
• 1.) Consumer Credit- A good example is where an individual obtains funds
intended to finance the purchase of an appliance, as for instance, a ref or gas
range.
• PURPOSE: Sales volume will increase and so with the profit.
NOTE: The proceeds of such loan are not usually used in such a way as to facilitate the
repayment of a loan unlike for promissory notes.
• 2.) RETAIL CREDIT- is a typical example of a consumer credit, which is
held the same with one another, as with personal credit, the use of
which is obtained through charge account and installment credit.
• 3) CHARGE ACCOUNT AND INSTALLMEN CREDIT- “cashless society
• They differ in several ways:
• 1.) Installment buying is largely confined to durable goods while charge
account is for non durable consumable items.
• 2.) The title to the goods under installment does not pass to the buyer unless
the last installment has been made. Charge account transfers automatically.
• 3.) Repossession is possible in installment due to failure to pay whicle
charge account is not because it is disappeared during the
consumption or use
• 4.) Installment- series of equal installment; Charge account- lump sum
• 5.) Installment- carrying charge that includes interest and collection
charges. Charge account- none
• 6.) Would be buyer in installment undergoes formal investigation of
their credit standing. Charge account is not , as in the particular
instance of goods bought from a retail store.
• 7.)Installment- covered by a considerable amount and written
contract of sale . Charge account is not.
The Use of credit card
• The credit card allows holder to obtain goods on credit from affiliate-
establishements of credit companies like restaurants, department
stores. The establishment bills the credit card company which
promptly pay and turn collects the obligations from the customer on
specified dates. 30-90 days.
Replevin
• Recovery of personal property when as particular instance the buyer
fails to pay installment in specified dates.
ADVANTAGES OF CHARGE ACCOUNT
• Convenience- able to obtain and make use before he has the chance
to pay it. Easier to return unsatisfactory merchandise and obtain
necessary adjustment.
DISADVANTAGE OF CHARGE
ACCOUNT
• Wasteful and extravagance
• Provide other examples.
ADVANTAGES OF INSTALLMENT
BUYING
• An individual with an average income to save P 5,000 or so with which
to buy a refrigerator. However in installment plan, all that an
individual needs to do is to make downpayment let say P 500.00
• Savings
• “Spreading out the expenditures”.
DISADVANTAGE
• 1.) Installment purchases cost more than articles purchased for cash.\
• 2.) Some people do not know what to buy leading to
OVERBURDENING of financial obligations that may be difficult to
meet.
TRUTH IN LENDING ACT
• In line with the policy of the sate to PROTECT its citizens from their
utter lack of awareness of the true cost of credit to the suer of goods
purchased on installment basis.
• This law provides that any creditor shall furnish to each eprosn to who
credit is extended, prior to the consummation of transaction , a clear
statement in writing setting forth the following information:
• 1.) The cash price or delivered price of the property or service to be acquired.
• 2.) The amounts, if any , to be credited as down payment and/or trade in.
• 3.) The difference between the amount of no. 1 and no. 2
• 4.) The charges, individually itemized which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit.
• 5.) The total amount to be financed.
• 6.) The finance charge
• 7.) percentage of finance charge.
PENALTY: Any person who fails to disclose to any person any
information in violation of the said act shall be liable to such person in
the amount of P 100 or in an amount twice the finance charge ,
whichever is greater except that such liability shall not exceed 2,000
WILFULL BREACH; Fine of P 1,000- P 5,000 or imprisonment for not less
than 6 mos. Nor more than one year or both.
TYPES OF CREDIT
• 4.) MERCANTILE CREDIT or COMMERCIAL CREDIT- a businessman may
extend to another when selling goods on time for resale. Parties to
the transactions may be merchants, distributors lie wholesalers,
jobbers, and producers or manufacturers.

• Mercantile is the transfer of account for business purposes while Consumer is


for consumption.
5.) COMMERCIAL BANK CREDIT
• Short term credit granted by banks to businessmen.
• E.g financing of goods in production, storage or transportation,
purchase of raw materials.

• Bank credit is important otherwise economic phases of development


will suffer. Either reduction, if not temporary stoppage of production
or slowing down of marketing and production process.
5.) Revolving credit

• Combination of charge account and installment plan.


• Service charge is made to the unpaid balance at the end of each
month,.
• A fixed limit is placed on the account provided that the balance does
not exceed the STIPULATED CEILING. The balance may perhaps never
be cleared since the credit revolves round and round.
• The applicant must hold a good credit standing to take advantage of
such
6.) Investment credit
• Utilized by a business for the purchase of long term equipment or to
carry minimum business operations.
• Five major sources are available such as funds of individual investors,
trustees of funds of individuals and estates, insurance companies,
banking institutions and business concerns.
7.) Merchandise credit
• The customer obtains goods in exchange for his promise to pay them
at a later date. E.g radios, television sets, refrigerators, washing
machine. Hence, the term merchandise credit.
TYPES OF CREDIT ACCORDING TO
PURPOSE
• 1.) Agricultural credit
• Consists of those loans which are intended for the purchase of fertilizers,
persticides and other equipment used in the production, processing,
transformation, handling or transportation of agricultural products
• 2.) Commodity Loan
• Commodity is defined as “any article or product used in trade or commerce”.
• Since most agri products are produced annually and are harvested for the
market within the span of few months, such a circumstance creates a yearly
problem of transportation, storage, financing and marketing . Hence the need
for commodity loans. The warehouse is required to be licensed to issue
negotiable receipts to meet all the specifications of the storage and
inspection.
3.) Export credit
• Extension of credit to buyers,as is the common practice, or it can be
done on the basis of the arrival of the goods, but before the buyer
takes possession of the goods. Still, export sales can be done on the
basis of payment when the goods are shipped through cash deposit
by the buyer or bank and guarantees particularly by a letter of credit.
• In the latter case, the exporter obtains payment from the importer to
pay a designated bank or the bearer of the invoice amount upon the
presentation of the draft at a fixed date in accordance with the terms
stipulated in the letters of credit.
4.) Industrial credit
• Intended to finance the needs of industries like logging, fishing,
manufacturing and which involved large amounts of money.
5.) Real Estate credit
• Credit is intended to secure purposely for construction, acquisition,
expansion and improvement of real estate peoperties.
• Today, the GSIS, SSS, Home financing corporations grant this type of
credit.
TYPES OF CREDIT ACCORDING TO
MATURITY
• 1.) Short term – payable within one year from the date of acquisition.
This type of credit usually covers the consumer goods.
• 2.) Medium of Intermediate- one year- 5 years. It covers the financing
of improvements of a firm or industry.
• 3.) Long term credit- 5 years and above. Intended for investment
purposes and involves many millions of peso such as acquisition of
PPE and the likes.
PUBLIC CREDIT
• Public credit consists of all claims against the government which may
be payable in goods and services but usually to foreign government or
individuals.
• Pledging of the good faith the resources of the nation for the
repayment of debt incurred on behalf of the people.
• Creditors of the government such as The World Bank, International
Monetary Fund, Export-Import Bank of Washington D.C.

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