University of Cebu Lapu-Lapu &

Mandaue,
Looc Mandaue City, Cebu Philippines

PROJECT in FINANCE
Kinds of Credit & Sources of Credit
Submitted by:
JULEVIE F. TABUCO
GINO MITCHEL M. FLORES
MARY FE P. PREMACIO
Submitted to:
BERNARDA M. PANILAGAN, CPA

According to Type of User

1. Consumer Credit
- is a debt that someone incurs for the purpose of

purchasing a good or service. This includes purchases

made on credit cards, lines of credit and some loans.
- kind of credit extended to consumers in order to
facilitate the process of consumption.
- also called as consumption credit

Consumer credit is basically the amount of

credit used by consumers to purchase non-investment
goods or services that are consumed and whose value
depreciates quickly. This includes automobiles,
recreational vehicles (RVs), education, boat and
trailer loans, but excludes debts taken out to
purchase real state or margin on investment accounts.

There are two types of Consumer Credit

1. Installment Credit
- the consumer must repay the amount owed in
specific number of equal payments
2. Noninstallment Credit
- is a single payment loans and open-ended credit

Reasons for Consumer Credit

This type of credit arises as a result of certain motives.
1. The desire for convenience.
2. To improve ones standard of living.
3. The product of necessity.
4. For emergencies
5. For identification
6. To make reservations.
7. To take advantage of free credit.
8. To consolidate debts.
9. For protection against rip-offs and fraud.

Retail Credit
is a typical example of consumer credit, which
is held synonymous with one another as with
personal credit. The use which is obtain through
charge account and installment credit.

Charge Account & Installment Credit Compared

a) Installment buying is largely confined to durable
consumers goods, while purchases on a charge
account.

b) The title to goods purchased on installment does not

pass to the buyer until the last installment payment has
been made.
c) In the event of failure on the part of the buyer to pay
the monthly installment payments.
d) Goods bought on the installment plan are paid by
means of a series of equal payments where several
purchases of goods bought on charge account are may
be paid in one lumps.

e) Customers who buy on installment plan always have

to pay a carrying charge, which usually includes
interest and collection charges.
f) A formal credit investigation of the buyer would be
on installment plan is undertaken by selling concern
before it decides to grant credit.
g) Goods bought on the installment basis generally, on
account of the considerable amount and agreement
which is not observed in the case of charge account.

Replevin
When an article is sold under an installment
contract, and the buyer later fails to live up to his part
of the contract, the seller, in order to protect himself
from loss, has the right to repossess the article.
.

TRUTH

IN LENDING ACT

This law provides any creditor shall furnish to

each person to whom credit is extended, prior to the
consummation of the transaction.

The following are the rules and regulation of the

Monetary Board.
1.The cash price of the property or services to be acquired
2. The amount to be credited as down payment or trade in.
3.The difference between the amount set fourth under
clauses (1) and (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 financed charge expressed in terms of peso and
centavos; and
7. The percentage that the financed charge bears to the
total amount to be financed expressed as simple
annual rate on the outstanding unpaid balance of the
obligation

2. Mercantile Credit
A pre-approved amount of money issued by a
bank to a company that can be accessed by the
borrowing company at any time to help meet various
financial obligations. Commercial credit is commonly
used to fund common day-to-day operations and is
often paid back once funds become available.

Business may be extend to another when selling

goods on time for resale or commercial also called as
commercial credit , a type of credit by one use.
Commercial credit is often used by companies to help
fund new business opportunities or to pay for
unexpected charges.

3. Bank Credit
refers solely to the credit given by commercial
banks to businessmen intended to assist then in the
operation of their business.
A bank credit is the amount of credit available to
a company or individual from the banking system. It
is the aggregate of the amount of funds financial
institutions are willing to provide to an individual or
organization.

A Revolving Credit
A revolving credit is a line of credit where
the customer pays a commitment fee and is then
allowed to use the funds when they are needed. It is
usually used for operating purposes, fluctuating each
month depending on the customer's current cash flow
needs.
is a combination of the charge account and the
installment plan

4. Investment Credit
A business organization for the purchase
of fixed assets or to carry minimum business
operation.

Five major sources are available from

which funds for long-term investment
may be secured.
1. Fund of individual investors.
2. Trustees of funds of individuals and
estates.
3. Insurance companies.
4. Banking institutions and,
5. Business concern.

According to whether merchandise or money

is given

1. Merchandise Credit
Other types of credit where the customer
obtain goods or merchandise in exchange to his
promise to pay them at a later date.

2. Borrowing Money
Besides the pressing necessity of obtaining
goods and services on credit, consumers are likewise
confronted with the need for money which they try to
obtain through borrowing.

According to purpose
1. Agricultural Credit
Those loans which are intended for the
acquisition of fertilizers, pesticides, seedlings, and
any instruments, machinery, and other movable
equipment used in production, processing,
transformation, handling or transportation of
agricultural products.

Commodity Loans the word commodity can be

defined as any article or product use in trade or
commerce as collateral
2. Export Credit
Export trade may be pushed by means of
extension of credit to buyers, as is the common practice
and done on the basis of arrival of goods , but before
the buyer takes possession of them.

3. Industrial Credit
Intended for financing the needs of industries
like logging, fishing, manufacturing, and others , and
which involves big amounts of money.
4. Commercial Credit
This type of credit, which is sometimes termed
as a mercantile credit.

5. Real State Credit

When credit is secured purposely for
construction, acquisition, expansion, or improvement
of real state properties , it is termed as a real state
credit.

According to maturity
1. A short term credit is payable within one year from
the date of acquisition.
2. Medium or intermediate term credit t= ranges from
one year to five years in maturity.
3. Credits which are intended from five years up belong
to the category of a long-term credit.

GOVERNMENT OR PUBLIC CREDIT

Public Credit means a pledging of the goods
faith and the resources of the nation for the repayment
of a debt incurred on behalf of the people. Public debt
consist of all claims against the government which
may be payable in goods and services, but usually in
cash.

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1. Individual Money Lenders

One of the sources of credit is the individual money
lender who may e lend his surplus to those in need so
that it will bring some income to him.
The unlicensed money-lender, who is often referred to
as a loan shark, does a thriving business in the grant
of loans at every exhorbitant rates of interest.

2. Retail Store
Easily the biggest source of merchandise credit in
the Philippines is the retail store, more particularly in
sari-sari store.
3. Pawnshops
Pawnshop is the oldest credit institution in China.
In the Philippines , pawn broking is also one of the
oldest credit institutions and had been introduced by
Spanish friars when we re under the Crown of Spain.

4.Commercial Paper House - the commercial paper house

is a financial institution that brings together the buyer
and seller of short-term commercial paper , that is the
lending institutions and the borrowing enterprise.
5.Savings Bank - since savings bank accumulate the small
savings of depositors, such accumulated funds are In
turn invested in bonds or in loans secured by bonds real
state mortgages , and other forms of security.
6.Commercial Banks - commercial banks are engaged in
the grant of loans not only to businessman, but also to
individuals for personal purposes.

.Rural Banks provide the chief sources of credit

especially for those engaged in agriculture who
needs these facilities badly.
7.Development Banks - like those of rural banks,
development banks form an important part of
our banking system extending the necessary
fund for purposes of hastening development.
8.Investment Banks - at time termed as investment
houses bridge the gap between those who have
idle funds not knowing where to invest them
and those in dire need of such funds.

9.Savings and Loan Associations - that corporation engaged in

the business of accumulating the savings of their members
as stockholders, and using such accumulations, together with
their capital in the case of stock corporations, for loans and
for investments in the securities of productive enterprises or
in securities of the government or any of its political
subdivisions, instrumentalities or corporations.
10.Finance Companies - as an industry it shares with the
government the universal goal of achieving a strong and
healthy financial system . It has three categories (1.) the
installment sales finance companies(2.)the consumer finance
companies(3.)commercial finance companies.
11.Credit Unions - are corporate organization which lend savings
to some members of the group.

12.Insurance Companies - the business of insurance

companies is to enter into insurance contacts with those who
wish to provide such contingencies as death or fire. They
receive premiums and pay out money on the occurrence of
the particular contingencies covered by the contracts.
OTHER SOURCES
Social Security System
Government Service Insurance System
Industrial Guarantee Loan Fund
Agricultural Guarantee Loan Fund
The Pag-Ibig Fund
Kilusang Kabuhayan at Kaunlaran

BASES OF CREDIT

1.Can the customer pay his bill when it becomes due?

2. Will he pay when it comes due?
A.Cs of credit
1.CHARACTER
The character of the borrower indicates his
willingness to discharge his financial obligation that
is to repay the loan as promised.
2.CAPACITY
as basis of credit capacity signifies the ability
to pay when a debt is due.

3.CAPITAL

for credit purposes credit represents the

financial strength of the risk that is it consist
of the amount and quality of goods and
property expressed in terms of money which
an individual or firm possesses over and
above his financial obligations.
4. COLLATERAL
must therefore be something of value
which can be easily converted into cash
deposited as pledge with a lender to secure

5. CONDITIONS
economic conditions exert profound effect
upon the grant of loans and credits it may be rightly
mentioned that loans and credit may be extended at
certain times and may be denied at other times.
6. Country
Since, as had been stated time and again, the sale of
goods and services in any part of the world on credit involves
risk, it follows that every factor should be carefully considered
and scrutinized in so far as they affect credit risk.

7. Currency
Not only is the stability of the country of
important an important factor to reckon with in the
consideration of credit risk in international trade
transactions but, equally so is that which pertains to
that of currency. The risk must also be taken into
account.

8. Confidence
Credit is founded on confidence which by far is
the principal C of credit. For any credit transaction to
take place, the business whether he be a seller of
goods or services on credit must have confidence.

B. Financial Statement
A financial statement is a report summarizing the
financial results of an organization on any data or
record. Financial statements of the individual firm are
the most source of financial data.

C. Credit Policy
Credit policies may vary from one business
enterprise to another. One relates to the type of
customers who are to be granted credit. One firm may
be primarily interested in increasing the volume of
sales. It therefore grants credit to all applicants and
runs the risk of some losses. Others take the
extraordinary precautions in granting credit that could
reduce their sales volume.

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1. Credit Terms
Is meant the terms and conditions under which
the credit is granted. It includes the time when
payment must be made discounts, if any will allow for
prompt payment.

2. Credit Period
It refers to the length of time within which the
customer is expected to remit payment in part or in
full. If this period expires before payment has been
made, the account becomes delinquent.

3. Credit Limit
A limit with respect to the amount or value that a
customer can obtain from the firm.

A. Quantitative Credit Limit

Indicates the seller`s judgment of the amount of
debt that a customer can incur and pay his firm.

B. Temporal Credit Limits

Type of credit limit which does not lessen the
amount of credit to which a prospective borrower or a
debtor may avail himself provided certain stipulated
requirements are accordingly met and complied with.

D. S
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1. Sources of credit information may be obtained from:

interviews with the applicant; availing the
services of a mercantile agency which has bees
established primarily to ascertain the credit position
of financial institutions, corporations, firms and
individuals.
2. Credit information may also be had through the use
of financial statements required of applicants to
furnish their prospective creditors.

3. Credit Management Association of the Philippines

involving more particularly those concerning frauds
and other forms of dishonesty committed by
applicants for credit.