Forms of Credit
Definition
These are various methods or ways that allow consumers to purchase goods or services before payment, based on the trust that payment will be made in the future.
Analogy
Think of forms of credit as borrowing a book from a library. You're allowed to take books (goods) home today, but you promise to return them (pay for them) by a certain date.
Related terms
Interest Rate: This is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. It's like late fees when you don't return your library book on time.
Loan: A sum of money that is borrowed and expected to be paid back with interest. It's like borrowing several books from different libraries.
Debt: Money owed by one party, the borrower or debtor, to a second party, the lender or creditor. If you don't return your library books on time and accumulate late fees, this becomes your debt.
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