Understanding the various forms of credit

							The granting of credit by banks increases the money supply, in turn the bank lets the borrower
repay the amount based on agreed terms and interest. All credit money created by bank lending
and the purchase of assets by banks, can disappear through debt management and disposal of
assets by banks.

It is neither sensible nor desirable that significant amounts in loans are not repaid, otherwise the
money supply shrinks leading to lack of liquidity in the economy.

Credit agreements could be taken as cash advances or partly as bills of exchange in the form of
letters of credit, loans or credit in exchange for the right (normally occupational) needs of the
borrower.

Credit is not necessarily based on formal monetary systems. The credit concept can also veer
off the conventional monetary systems, by being applied in barter economies on the grounds of
direct exchange of goods and services.

Opposite to money, credit cannot function as a unit of account, but numerous kinds of credit are
capable of working as a medium of exchange.

One of the most common forms of credit is the loan, it is the contractually stipulated granting of
money or goods by the lender to a borrower. The deal between the parties has a fixed
repayment agreement. For annuity loans, the rate includes only interest and a repayment
component, which increases proportionally in the course of a repayment period.

Central banks play the role of being the lender of commercial banks, they offer the pledge of
securities, and bank loans to commercial banks which can get in return, credited central bank
money. The commercial banks can borrow under the marginal lending facility whenever
necessary by borrowing against pledged assets to the central bank.

Credit is employed in commercial trade under the term trade credit denoting the approval of
delayed remittances for the acquired items. Consumer debt on the other hand can be specified
as money, goods or services supplied to someone in place of payment. The debt could be in
relation to personal loans, credit cards, mortgage loans among others.

Loans are available to a particular form of cash loans, the limit is often automatically based on
the average number of regular payments, such as salary or pension payments.

Working capital loans are cash advances for financing current assets, and are frequently
granted as credit lines on current accounts. Generally they are structured as a revolving credit,
in addition to the commissions paid to loan interest rates.