The word Credit can have different meanings or interpretations. To say that a person is creditworthy is to say that we trust him. Applied to the financial sector, we are talking about bank credit that is nothing more than a contractual relationship between two parties:
- Bank or financial institution;
To ask for a credit more is not to borrow money, anticipating consumption from the future to the present (by contrast, saving is delaying consumption from the present to the future). To be able to anticipate the consumption it is necessary to compensate the bank that lends us, in form of interest. Compensation is due to:
- Instead of lending the bank you can invest the money and get a pay;
- There is risk of the client not returning the money, so the bank wants to protect. The higher the risk the higher the interest rate on the loan
Is Credit Bad?
Seen in this way, credit is neither good nor bad, but rather a tool available to people and companies to satisfy a certain need. It follows that what makes credit good or bad is the use that the person or company makes of it:
- Good Credit – A loan that allows to reduce a set of charges or satisfy a basic need, adapting the value of the benefit to the family budget;
- Bad Credit – A loan to satisfy a less basic need (or even to buy something superficial) and whose performance is not adequate to the family budget (high effort rate).
What are the Advantages of Borrowing Credit
Anyone who borrows money is seeking to satisfy a need, whether it is essential or superficial. Thus, we can highlight a set of credit advantages:
- Anticipate the fulfillment of a need;
- Realization of value-creating investments;
- Satisfaction of emergencies (such as health expenses, for example).
Credit Has Disadvantages That Can Be Dangerous
Despite the advantages listed, the use of credit also has some risks and / or drawbacks:
- Obligation to pay interest;
- Very restrictive rules with serious penalties for non-compliance;
- Potentiation of risks and financial dislocation.
Linton family helps your customers save money on their loans. Whether to make a consolidated credit (reduce benefits by reducing the interest rate) or to reduce interest rates on a new loan. In this process, we warn that the use of credit should be very careful to avoid entering into situations of financial fragility / danger. Never make a claim if you suspect that you will not be able to pay it.
Ever had a bad credit experience? Did you have difficulty paying your installments? Share with us your experience.