Wednesday, 10 September 2014

What Are The Three Categories Of Consumer Credit

Know the different kinds of credit to better understand your financial situation.


Consumer credit is money borrowed for purchases that are immediately used or that decline in value after purchase. Consumer credit is not used to purchase investment items; therefore, a mortgage is not considered to be a kind of consumer credit. The three different categories of consumer credit are based on the terms of when payment is due.


Installment Credit


Installment credit is when the purchase of an item is paid off in even installments over a set period of time. Interest is also charged. An example would be the equal monthly payment of $463.16 on a $15,000 car loan, assuming a 36-month term at a 7 percent interest rate.


Revolving Credit


Revolving credit has a preset limit that you can borrow, which remains available to you as long as you make regular payments in accordance with the credit agreement. An example of this is a credit card with a set credit limit. The card can be used as long as the card remains in good standing and at least the minimum payments are made.


Open Credit


Open credit does not allow you to carry a balance and must regularly be paid off in full. An example is a business expense account carried on a company credit card that must be cleared every month.

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