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Understanding The Purpose And Function Of Credit For The Community | CREDIT

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The US public has experienced the great purpose and function of credit in their daily lives. They don't just use credit to meet consumptive needs. Credit is also used for productive purposes, such as building a business or increasing the amount of stock.

Credit has become a solution for US citizens in overcoming their financial problems. However, what is credit? How is credit used to meet the complex needs of society?

Check out the answers in this article.

What Is Credit?

Credit is a loan service from financial institutions to customers. The loan must be repaid within the agreed timeframe along with the interest.

The proceeds from the credit are used to meet community needs, such as buying goods, adding property or vehicle assets, developing a business, or increasing stock of goods.

Credit actually comes from Italian, namely credere which means trust. From the aspect of language, you can conclude that credit is a form of trust from the creditor (creditor) to the debtor (credit recipient).

When borrowing some money, the creditor believes that the debtor will return the borrowed funds with interest.

The loan was returned not past maturity and according to the agreement between the two parties. Payment of loan funds can be made in one time payment or in installments (in installments).

Credit means "the provision of money or bills that can be equated with it, based on a loan agreement or agreement between the bank and another party that requires the borrower to repay the debt after a certain period of time with interest".

Credit Purpose

Credit services in the US have been present since the 1980s through credit card facilities. At that time, credit cards were only intended for certain circles, namely businessmen, officials, and upper class people.

Over time, credit began to be used by the general public. Since then, many US citizens have experienced the great functions and benefits of credit to this day.

However, what is the purpose of financial institutions providing credit services to their customers? There are three objectives of financial institutions providing credit to their customers, namely:

1. Benefit from Interest

Where do banks get their profits from? Of course from interest payments on customer loans. The amount of interest can be fixed (flat), can also be progressive over time.

If customers do not pay off their loan repayments on time, they must also pay late fees. These fines are also useful for financing bank operations.

2. Assisting Customers in Fulfilling Needs

The bank also wants to help customers meet their needs, both consumptive and productive. Therefore, they provide credit services to their customers.

Banking provides many types of credit according to the needs and goals of the community. For example, intended for people who want to develop their merchandise. There are also Housing Loans to help people buy houses or other types of property.

3. Advancing the US Economy through Credit

Credit is a form of banking contribution to the US economy as a whole. The more funds channeled through credit, the more the country's economy grows.

Distribution of business loans to small or medium entrepreneurs can improve their business performance. Entrepreneurs can develop their business so that they succeed in earning greater income. This income is used to pay taxes as a form of employer contribution to the US economy.

Credit Function

Credit also carries a major function for US society. So, what are the functions of credit for them? Check out the explanation below. that is:

1. Increasing the Usefulness of Money

The utility of money increases when it is used by the community. Therefore, banks do not only provide deposit services. Loan services were launched to keep money productive and generate profits for the bank.

2. Increase the circulation of money

Business credit is used to procure goods and services for a business. If a business already has the product, they can carry out trade transactions with their consumers. As a result, the circulation of money in an area also increases thanks to the utilization of these credits.

3. Motivating Business Progress

The average entrepreneur immediately backs down when they find out that the amount of business capital needed is not small. Credit services function to motivate entrepreneurs in advancing their business. They don't need to delay business development because they can borrow some funds first.

4. Increasing the usability of production goods

One of the reasons people need credit is to develop their products. Credit assistance from banks is useful as capital to improve product quality. Entrepreneurs can use raw materials of the highest quality so that the usability of goods increases.

5. Improving Economic Stability

Credit is also used for the distribution of export goods to foreign markets. Foreign exchange or the results of exports are included in the country's income. As a result, economic stability increases because of this export activity. Not only that, the US is also increasingly competitive in the international market.

6. Revolutionizing the Mindset of US Society

Most US people think that the capital to develop a business only comes from their own pockets. In fact, banks provide credit services to increase the level of business. The presence of this credit slowly changes the mindset of the people so that they don't have to delay starting a business.

There are so many purposes and functions of credit for US society, right? Do you want to feel the credit function for the progress of your business? Just use online bank loans to complete your business needs.

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