There are different types of credit that are available to cater to a number of needs of the different segments of the society. These credits include credit cards, loans, service credit, installment credit and revolving credit. Essentially, there are five types of credit and they are the following: Loans:Various types of loans are offered by banks and other financial services providers. Loans enable individuals and companies to obtain cash. Loans vary according to the amount borrowed, the repayment term, and the terms and conditions. Repayment of a loan can be done in full or lump sum or with the help of installments. Loans are broadly categorized into two types, secured loans and unsecured loans. Credit Cards: Credit cards are offered by a large number of banking institutions, commercial enterprises, and individual retail stores. Credit cards are utilized for buying things on credit and if the payment is made within a stipulated period of time, no interest is charged.
The different types of credit cards are as follows:
- Departmental store cards
- Travel & Entertainment Cards (T&E Cards): Carte Blanche, American Express, Diners Club
- Bank Credit Cards: Discover, Visa, and MasterCard
- Secured Credit Cards (SCC)
Installment Credit: Installment credit is a form of credit, which can be repaid through a specified number of installments. The features of installment credit are totally different from a revolving credit. It is basically an easy payment program. Furniture, automobiles and consumer goods are bought with the help of this plan. Initially, a down payment is required and the rest is paid through a particular number of equal installments. According to the agreement, the item bought is utilized as a security or pledge for the debt.
Examples of installment credit are the following:
Home construction loan
Home equity loans
Home improvement loan
Recreational vehicle loans or boat loans (specialty finance)
Service Credit: Service credit refers to the monthly payments for availing public utility services, for example gas, telephone, water and electricity. A deposit has to be maintained for this and a late fee may be charged if the payment is not made in time. Revolving Credit: Revolving credit is a form of credit, which is not repaid by a certain number of installments and this is opposite in nature to installment credit.
Examples of revolving credit are the following:
Home equity loans (HELOC)
Line of Credit