Credit Fundamentals (Part 1)

Summary

This video explores the fundamentals of credit, focusing on its definition, importance, and the key concepts that define credit transactions. Credit is an arrangement where goods, services, or funds are provided now, with payment deferred to the future. The perspective of both lenders and borrowers is discussed, as well as the distinctions between ownership and possession. The script also explains various items involved in credit transactions, such as goods, services, funds, property, and rights, with real-life examples. It concludes by distinguishing between credit sales and regular sales, emphasizing the transfer of ownership and possession in both scenarios.

Takeaways

• 😀 Credit is an arrangement where goods, services, or funds are provided now with the promise to pay later.
• 😀 In a business context, credit involves a transaction between a lender (creditor) and a borrower (debtor).
• 😀 A lender views credit as a trust in the borrower's ability and willingness to repay.
• 😀 A borrower sees credit as the ability to obtain goods or services now, with an agreement to pay later.
• 😀 Credit involves five main items: goods, services, funds, property, and rights.
• 😀 Goods are tangible products like groceries and appliances, while services are intangible like car repairs and beauty services.
• 😀 Property can be lent temporarily, such as a hammer or a car, and the owner is referred to as the bailor, and the user as the bailee.
• 😀 Rights involve the lease or rental of property, with the owner referred to as the lessor and the user as the lessee.
• 😀 Ownership refers to legal title to property, while possession refers to physical control over it.
• 😀 In a sale, both ownership and possession of goods or services are transferred to the buyer, who must pay either immediately or later.
• 😀 If the buyer agrees to pay later, it is a credit transaction, and the obligation to pay remains until fully settled.

Q & A

What is the simplest definition of credit?

Credit is an arrangement to receive cash, goods, or services now and pay for them later.

How does credit differ from the viewpoint of the lender and the borrower?

From the lender's perspective, credit involves trust in the borrower's ability and willingness to pay. From the borrower's perspective, credit is the ability to obtain goods or services now in exchange for a promise to pay later.

What is the more appropriate definition of credit?

Credit is defined as a transaction involving the transfer of goods, services, funds, property, or rights, thereby creating an obligation for the receiver to comply with payment terms in the future.

What are the five items provided by the lender or creditor in a credit transaction?

The five items are: goods, services, funds, property, and rights.

What is the difference between goods and services in the context of credit?

Goods are tangible products with physical characteristics, while services are intangible, such as car repairs or beauty services.

What is the meaning of the term 'bailor' and 'bailee' in credit transactions?

In credit transactions involving property, the owner of the property is called the 'bailor,' and the person borrowing or using it temporarily is called the 'bailee.'

What are the terms used for the parties involved when credit involves rights?

When credit involves rights, the parties are referred to as the 'lessor' (the one who owns the rights) and the 'lessee' (the one who rents or uses the rights).

What is the difference between ownership and possession?

Ownership is the legal title to a property or right, while possession is the physical control or use of the property. A person may own something but not possess it, and vice versa.

How is a sale different from a credit transaction?

In a sale, the transfer of both ownership and possession of goods or services occurs immediately in exchange for payment. In a credit transaction, the buyer promises to pay in the future, so the obligation remains until the payment is made.

What does Article 1458 of the Civil Code of the Philippines say about a sale?

Article 1458 defines a sale as a contract where one party agrees to transfer ownership of goods or services and deliver them to the buyer, who in turn agrees to pay a price in money or its equivalent.