credits.is

Credit is the provision of resources (such as granting a loan) by one party to another party where that second
party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either
to repay or return those resources (or material(s) of equal value) at a later date. It is any form of deferred
payment.[1] The first party is called a creditor, also known as a lender, while the second party is called a
debtor, also known as a borrower.

Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn
dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.

Credit need not necessarily be based on formal monetary systems. The credit concept can be applied in barter
economies based on the direct exchange of goods and services, and some would go so far as to suggest that the
true nature of money is best described as a representation of the credit-debt relationships that exist in
society (Ingham 2004 p.12-19).

Credit is denominated by a unit of account. Unlike money (by a strict definition), credit itself cannot act as
a unit of account. However, many forms of credit can readily act as a medium of exchange. As such, various
forms of credit are frequently referred to as money and are included in estimates of the money supply.

Credit is also traded in the market. The purest form is the credit default swap market, which is essentially a
traded market in credit insurance. A credit default swap represents the price at which two parties exchange
this risk - the protection "seller" takes the risk of default of the credit in return for a payment, commonly
denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while
the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other
receivable), delivers this receivable to the protection seller and receives from the seller the par amount
(that is, is made whole).

Trade credit

The word credit is used in commercial trade in the term "trade credit" to refer to the approval for delayed
payments for purchased goods. Credit is sometimes not granted to a person who has financial instability or
difficulty. Companies frequently offer credit to their customers as part of the terms of a purchase agreement.
Organizations that offer credit to their customers frequently employ a credit manager.

Consumer credit

Consumer debt can be defined as ‘money, goods or services provided to an individual in lieu of payment.'
Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans
(installment loans), retail loans (retail installment loans) and mortgages. This is a broad definition of
consumer credit and corresponds with the Bank of England's definition of "Lending to individuals". Given the
size and nature of the mortgage market, many observers classify mortgage lending as a separate category of
personal borrowing, and consequently residential mortgages are excluded from some definitions of consumer
credit - such as the one adopted by the Federal Reserve in the US.

The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has
to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required
by the lender as an integral part of the credit agreement. Other costs, such as those for credit insurance,
may be optional. The borrower chooses whether or not they are included as part of the agreement.

Interest and other charges are presented in a variety of different ways, but under many legislative regimes
lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR). The goal
of the APR calculation is to promote ‘truth in lending', to give potential borrowers a clear measure of the
true cost of borrowing and to allow a comparison to be made between competing products. The APR is derived
from the pattern of advances and repayments made during the agreement. Optional charges are not included in
the APR calculation. So if there is a tick box on an application form asking if the consumer would like to
take out payment insurance, then insurance costs will not be included in the APR calculation (Finlay 2009).