Types of Credit

Credit in the broad sense of the word refers to the provision of money or goods by one individual or legal entity, as well as by any other entity to another on a reimbursable or non-reimbursable basis. In a narrower sense, the term “credit” refers to funds that specialized organizations (banks, MFIs, pawnshops) allocate to their customers on certain terms, while receiving some benefit. Naturally, the modern development of the financial market implies a huge variety of loans, which differ in various parameters and characteristics.

Consumer loans

Consumer loans provide for a client to borrow money to meet personal needs by making a purchase or consuming various services. The execution of consumer loans is considered one of the most popular types of bank lending, which is explained by several reasons. First, such loans can be obtained quickly enough. Secondly, the minimum possible requirements to the client, which are often limited to providing a passport of a citizen.

Car loans

Car loans are actually a type of consumer loans, however, they have several peculiarities, which are peculiar to this financial operation. The most important among them are:

• the targeted nature of the loan, which provides for the expenditure of funds received exclusively for the purchase of a car;
• The need for insurance of the vehicle, and such client’s obligation is provided directly by the current legislation.

These favorable conditions for car credits became the reason that even in the years of crisis a considerable part of car purchases fall on this particular mode of financing.

Microloans

In addition to banking institutions, numerous microfinance organizations also provide lending services. Despite the tightening of the rules of their work, the number of MFIs actively working in Russia is still quite large. Considering the peculiarities of loans provided by such companies, they are often called microcredits or microloans. This is due to the fact that in most cases they are small amounts in cash or on a card for a short period of time. Another important feature of MFIs is the extremely high interest rate on their loans.

Mortgage loans

Mortgage lending is characterized by large sums of money allocated by banks, as well as by the serious duration of the loan. Obviously, the purchase of housing without attracting credit resources is available today to an extremely small number of Russians, which explains the demand and popularity of this banking service in the market. The essence of the mortgage is that the borrower draws acquired housing as collateral. In some cases, to secure a mortgage loan uses other real estate client.

Loans for business development

An indispensable factor in the development of business in the country are favorable conditions and opportunities for its lending. There are a large number of different loans, the funds of which can be used to start or develop a business.

Types of commercial credit

Today, several different classifications of commercial loans are actively used. According to the most common there are the following types:

• Overdraft. Available to both individuals and legal entities. Represents a credit line with a certain limit, the size of which depends on the turnover of the account. Every two weeks or month, the borrower must repay the overdraft in full, after which it can use the funds again within the allocated limit;
• Commercial mortgage. The main principle of interaction between the borrower and the bank is similar to an ordinary mortgage, but it is not a purchase of housing, but the purchase of office, warehouse, manufacturing facilities or other commercial property;
• Commodity credit. A borrower receives from a bank the necessary goods, gradually paying for it, taking into account the interest accrued.

Apart from listed above, many other types of commercial credit are applied in practice, which is not surprising, taking into consideration the demand for this type of bank services.

Leasing

Leasing is understood as a separate type of credit, often called financial lease. Its mechanism is the following: the borrower receives the necessary equipment, transport means or even immovable property from the lessor, exploiting and gradually paying off for it. The object of leasing is the property of the creditor until the last payment, and passes to the borrower after full payment of the financial lease contract. An important advantage of such type of credit is the tax benefits provided by the legislation.

Other types of credit

The above-mentioned types of credit are reasonably considered the most common and frequently encountered in practice. However, there are also other types of loans.

Lombard loan

The main feature of lombard loans is the allocation of funds on the security of liquid property. Usually, the repayment period is short enough, rarely exceeding 1-2 weeks. If the loan is not repaid within the specified period, the pawnshop sells the pledged property. The enterprise profit in this case is provided by the fact that the borrower is given no more than 50-60% of the real value of the collateral.

Types of public credit

State credit refers to funds allocated under certain conditions from the budget or other States or separate subjects within the country. This can be both regions and various funds, public or commercial organizations, etc.

Types of foreign and international loans

Foreign loans are loans granted by foreign states, banks or other organizations to the Russian budget or economic entities located in the country. International loans are such loans when the lender and the borrower are representatives of different states.