If you always seems confused with the debit and credit stuff then this is the right place for you, Because in this article I will be covering topics like, Credit meaning in banking, Types of bank credit, Meaning of debit and credit and many more interesting stuff.
What is Credit Meaning In Banking?
In banking, Credit is an agreement between the bank and the borrower in which the borrower agrees to repay the fund along with this interest applied. It can be applied on a loan, Credit card or some other line of credit.
For Example – Let’s say that i have taken a credit card with a limit of
$1000 and the interest applied on it is 3% (Monthly). So if i spend $500 through that credit card then i owe $500+$15 (3% Interest applied) to the bank. This is one of the examples of credit meaning in banking.
Types of Bank Credit?
Now that we have understood Credit meaning in banking, So let’s explore the main types of bank credit :-
- Individual Loans – These loans are ideal for businesses like grocery stores, medical shops and other small businesses. The purpose of these loans is to meet shortfall of finance towards a running business during an unexpected spikes in sales volume. These loans have a very easy application process.
- Real Estate Loans – Real estate loans is used for commercial real estate like shopping centers, malls, hotels and complexes. Some insurance company may provide capital for real estate loans.
- Financial Institution Loans – Financial institution deals in the business of financial and monetary transactions. Financial Institutions are a very huge and important part of our economy. Most of the companies rely on these financial institutions for transactions and investing. Financial institution loans include credit to banks, other institutions and insurance companies.
4. Agricultural loans – Agricultural loans are those loans that are availed by a farmer for agricultural operations or buying inputs such as seeds, Insecticides and fertilizers. These loans fall under short term loans for investing and production purposes.
5. Commercial and Industrial Loans – There are often times in the business when more funds is required. In these scenarios commercial and industrial loans are really helpful because it is easier to get debt on. Commercial and industrial loan are loans to businesses and are often short term loans.
Difference Between Debit And Credit.
In this article so far, We have covered credit meaning in banking, Types of bank credit and now we will study what exactly is the difference between debit and credit.
These two terms (Debit and Credit) can be very confusing if you look into it with the prospective of both the parties involved in the monetary transaction. Let me explain it to you in a very simple way.
From each party prospective what comes in is credit, what goes out is debit. Similarly you can remember what puts money in your pocket is asset and what takes money out of your pocket is liability. You will find millions of opinions on what actually is the difference between debit and credit, but what we have discussed above is probably the best way to remember it.
Debit Cards Vs Credit Cards
Debit and Credit cards are created by the banks for marketing purposes. A debit card is used to purchase a product within one’s own money whereas a credit card is making a purchase with borrowed money.
Use debit card not credit card, My personal recommendation to you is to stay away from credit card if it is not really necessary for you. Most people who use credit card end up paying more than what they have spent on their credit card. But if you really know how to manage a credit card then it can prove as a useful tool for you because it helps in building up your credit score. You can also earn many reward points if you are good in maintaining your financial stability.