What Are Terms of Credit?
The term “terms of credit” describes the agreement between a lender and borrower regarding the interest rate, collateral, and documentation. The terms of credit differ from lender to lender, and also depend on the purpose of the loan and the borrower’s past relationship with the lender. In addition, the terms of credit can vary from person to person, depending on their personal circumstances and the risk involved. For example, the terms of credit may be much lower if the borrower is a relative, while those with more complicated situations may require a moneylender or a commercial bank located in a city or town.
Every loan agreement has its own terms, including the interest rate and repayment terms. In addition, the lender may require collateral, which acts as a guarantee for the loan. The lender retains the right to sell the collateral if the borrower is unable to repay the loan. The terms of credit vary depending on the borrower and lender, and they are important to understand before you make a decision on a loan. However, many loans have very simple terms and can be secured with collateral.
What do you mean by terms of credit?
Before a credit sale can take place, the terms of the credit agreement must be agreed to. While most credit terms follow a standard pattern and relate to specific goods and services sold in industries, the terms of the loan may vary. The Reserve Bank of India oversees formal sources of credit and the Barter System. The standard term rate in most industries is two-tenths of a percent net/thirty-five percent.