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What is meant by term of credit? What does it include?

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Terms of credit is the list of requirements need to be satisfied for any credit arrangements.

It includes interest rate, collateral, documentation and mode of repayment.

  1. Interest rate- While borrowing or lending money as loan, there is a reward given to the lender for lending his money to borrower. The reward money is calculated with a fixed rate (%).
  2. Collateral- Collateral can be any asset owned by borrower like land, house, shop, etc. The borrower offer his assest which act as a guarantor for loan repayment.
  3. Documentation- Proper documents of borrowing with all the terms and conditions must be submitted. The lender check all the documents (employment record and income proof) before lending money.
  4. Mode of repayment- The mode through which the borrower will repay the loan must be clearly mentioned. Long term loans can be repaid in annual, six monthly or monthly installments.

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