O level CommerceTopic 3:

Consumer creditREVISION NOTESwww.fetsystem.com

Use of creditUse of credit

In credit the buyer buys and uses the In credit the buyer buys and uses the product but pays later for the product but pays later for the product or serviceproduct or service

Increased use of creditIncreased use of credit

The use of credit has increasedThe use of credit has increased All businesses are ready to sell their All businesses are ready to sell their

products or services on creditproducts or services on credit The sales have increased due to creditThe sales have increased due to credit The bad debts have also increasedThe bad debts have also increased Bad debt is the money which is not Bad debt is the money which is not

recovered due to non-payment of recovered due to non-payment of buyer in case of credit salebuyer in case of credit sale

Advantages of credit to the Advantages of credit to the buyerbuyer

Can buy goods which are not Can buy goods which are not affordableaffordable

Increased standard of livingIncreased standard of living Payment can be made in installmentsPayment can be made in installments Convenient ( it is easy to use and Convenient ( it is easy to use and

carry credit card)carry credit card)

Disadvantages of credit to the Disadvantages of credit to the buyerbuyer

The seller will charge interest on The seller will charge interest on creditcredit

Problem in making the paymentProblem in making the payment Social problemsSocial problems Fake Fake

Advantages of credit to the Advantages of credit to the sellerseller

Increased salesIncreased sales Gain customer loyaltyGain customer loyalty Out of date stock is usually sold on Out of date stock is usually sold on

credit to get rid of itcredit to get rid of it Seller charges interest and offers no Seller charges interest and offers no

discount on goods sold on creditdiscount on goods sold on credit

Disadvantages of credit to the Disadvantages of credit to the sellerseller

Money is sometimes not recovered Money is sometimes not recovered from the buyer (bad debts)from the buyer (bad debts)

Late paymentLate payment Cash flow problemCash flow problem

Types of creditTypes of credit

Hire purchaseHire purchase Extended creditExtended credit Store cardsStore cards Credit cardsCredit cards Informal credit Informal credit

Hire purchaseHire purchase

Ownership remains with seller until Ownership remains with seller until the last paymentthe last payment

Payment is made in installmentsPayment is made in installments Interest is chargedInterest is charged Examples of things bought on hire Examples of things bought on hire

purchase: cars, televisions purchase: cars, televisions

Advantages of hire Advantages of hire purchasepurchase

Disadvantages of hire Disadvantages of hire purchasepurchase

Extended creditExtended credit

Extended credit given to customerExtended credit given to customer Facility provided by the departmental Facility provided by the departmental

storesstores The buyer buys and uses the productThe buyer buys and uses the product The buyer can resell the product as The buyer can resell the product as

he/she is the owner of the producthe/she is the owner of the product

Advantages of extended Advantages of extended creditcredit

To sellerTo seller– Increased salesIncreased sales

To buyerTo buyer– Use the product but pay laterUse the product but pay later– Can resell the productCan resell the product

Disadvantages of extended Disadvantages of extended creditcredit

To sellerTo seller– Recovery of the money is a problemRecovery of the money is a problem

To buyerTo buyer– Buyer has to pay interestBuyer has to pay interest– Buyer cannot return the product if he Buyer cannot return the product if he

does deem it as fitdoes deem it as fit

Store cardsStore cards

Plastic cards issued by departmental Plastic cards issued by departmental stores to the customersstores to the customers

Credit limit is givenCredit limit is given The amount used on the card has to The amount used on the card has to

be paid off end of the monthbe paid off end of the month

Advantages of store cardsAdvantages of store cards

To buyerTo buyer– Interest free purchaseInterest free purchase– Extra servicesExtra services

To sellerTo seller– Increased salesIncreased sales– Customer loyaltyCustomer loyalty

Disadvantages of store Disadvantages of store cardscards

To buyerTo buyer– The customer tends to overspend as The customer tends to overspend as

he/she does not have to pay nowhe/she does not have to pay now To sellerTo seller

– Bad debtsBad debts

Credit cardsCredit cards

Plastic card owned by the credit card Plastic card owned by the credit card holder and issued by the banksholder and issued by the banks

Credit limit is givenCredit limit is given No interest charged if amount paid No interest charged if amount paid

end of the monthend of the month 3% of sales given to credit card 3% of sales given to credit card

compnay as commisioncompnay as commision Master card and VisaMaster card and Visa

Advantages of credit cardsAdvantages of credit cards

Convenient to useConvenient to use Easy obtain cashEasy obtain cash Increased standard of livingIncreased standard of living It is used all over the worldIt is used all over the world

Disadvantages of credit Disadvantages of credit cardcard

Cards holders normally overspendCards holders normally overspend Credit card fraudsCredit card frauds Disputes and social problems due to Disputes and social problems due to

payment issuespayment issues Use of credit cards in developing Use of credit cards in developing

countries is limitedcountries is limited

Informal creditInformal credit