Question
Explain any four terms of credit with examples.
Solution
Four terms of credit are-
(i) Interest rate- Every loan agreement specifies an interest rate which the borrower must pay to the lender along with the repayment of the principal.
(ii) Collateral- It is an asset that the borrower owns such as land, building, vehicle, live stocks deposits with the banks and uses this as a guarantee to a lender until the loan is repaid.
(iii) Documentation-It is related to identification such as employment records and salary.
(iv) Mode of repayment- This refers to the manner in which loan would be repaid.
