In the modern world loan is no scare. Every third man at least once in his life he applied for a Bank loan, every fifth there is a credit card with renewable limit. But the mortgage market is growing steadily every year, despite a decline in the stability of the Russian economy, which was caused by the imposition of sanctions.
The essence and function of credit today cause a great deal of interest. From an economic point of view, a loan is defined as a contract between the creditor (Bank or other organization) and the borrower (an individual or legal entity).
But far from economic science, even if he is an active user of credit line of a particular Bank, rarely thinks about the usefulness of the loans about what are the functions of credit exist. The period and terms of such loan are described in a specially created loan agreement. Both sides definitely fix it with their signatures, and only then he can be deemed to be in force.
Credit in modern society
The essence and function of credit are more than economic categories. Without proper education a person is difficult to understand all the intricacies of these concepts.
The essence of credit consists precisely in the provision of cash loans. The borrower may allocate funds on a certain goal (everyone is familiar with the concept of a car loan or mortgage – objective: the acquisition of the apartment or car, respectively), and for other purposes (consumer credit). The borrower (in this case a physical person) is obliged to return the loan within the stipulated in the loan contract terms with a listed interest.
Economists identify two main features of the loan. This redistribution and the substitution of cash credit.
Received loan allows you to distribute funds in such a way that they under contracts of loans are transferred from one organization to another. Thus, is a continuous stream of cash flows. This allows you to withdraw available funds from the lender and pass a private individual to invest at the expense of another organization.
As an example, which demonstrates the redistributive function of the loan can serve as a usual consumer loan: granted by the Bank the funds are transferred to the borrower, and he, in turn, gets them Cabinet furniture, and the money goes into the purchase process at the expense of the furniture of the organization.
Funds allocated through the loan help to replace the real banknotes with a credit card. Many people now actively use credit cards of certain banks – a function of substitution in action. This leads to a reduction of the time of the transaction (non-cash funds without additional authentication be transferred to the account almost instantly) and facilitates the transfer of funds.
Apart from the above, economists distinguish three additional features of the loan.
Banknotes will eventually lose its original appearance, wear out, become useless. And there is a need to issue new banknotes in circulation and, therefore, are the costs of their production. Non-cash means allow these costs to minimize or even reduce to zero, as for their use, no need to print new banknotes.
In fact, it saves not only funds on manufacturer new banknotes, and time: the printing process with the use of modern means of protection of banknotes is quite time-consuming. It begins with the preparation of special foundations paper of a certain composition is manufactured at the enterprises of the cotton fiber, it provides for the security thread, then it is sent to press and should be dried. Then have to be printed in several stages, watermarking, stamping is a holographic image, and other.
A function of gain capital growth
Despite the fact that the loan will have to return at the expiration of the contract, the use of borrowed funds leads to an increase in the aggregate profit of the borrower (individual or organization). Instead of humbly year after year to save money on the purchase of cars quite easy to get a car loan and buy a car now.
Despite the interest, it will be beneficial – inflation year after year will devalue the money, in fact, reducing your savings, and wait for the opportunity to purchase a private car will last longer.
Stimulates the function
The proposed functions of a loan justify the need to use Bank loans and to characterize them on the positive side for the economy as a whole.
Getting a loan always encourages the borrower to development: received a loan from the Bank people can open their own business, put money on extension of existing living space to build a cottage and so on. If the loan is granted to the organization, she will expand production, purchase new equipment, open new lines, which in General leads to growth.
Forms of credit
Functions and forms of credit are conventionally divided into two categories depending on the nature of national credit and international. These forms, in turn, divided into monetary and commodity.
Cash are Bank, interbank, government, mortgage, pawn, consumer loans. Commodity – commercial, consumer, leasing.
All these forms are widely used in the modern world in different levels, starting with simple (Bank – client) and progressing to more complex (state government).
The basic principles of lending
What are the principles and functions of credit? Any loan, there are the following basics:
- Urgency: the term of the loan are clearly established and reflected in the contract. After the signing period may only be changed by concluding additional contracts (some banks reduce the loan term in case of early repayment).
- Repayment: the loan must be returned at the end of fully ranked by percentage. If the loan repayment is not made, then the banks can transfer rights to other organizations (collection agencies), who will collect from the debtor credit.
- The payment for use of loan the borrower is charged a certain percentage specified in the contract. After the signing of the interest on the loan will not change. If there is such a need, the previous loan is closed and opens another new interest.
- Reliability: to test the ability of the borrower to return the loan funds in the prescribed contract terms. This involved the Bank's security service and special scoring system that weed out insolvent borrowers.
- Targeted: each loan must be due to some purpose. This can be a mortgage (goal is the purchase of apartments), the loan (the purpose – the purchase of a car), trade credit (purchase of goods), etc.
Classification of loans by maturity
Russia and Europe there are the following types of loans depending on their term:
– short-term loans: up to one year (Europe), from three to six months (Russia)
– medium-term loans: one to three (rarely to five years) in Europe, from six months to one year in Russia
– long-term loans: of more than five years (Europe), more than one year (Russia).
However, in Russia this classification is quite often simplified, leaving only two types of loans: short-term (one year) and long term (over one year).
What are the functions of state credit? Unlike the usual for any individual Bank loan, it is a debt relationship between the state (the lender) and the government or the state government (borrower).
State loans can be both internal (funds are allocated within a country from state government) or external (from one state to another state).
There are two main forms of public credit:
– no bonding: a loan is taken either promissory notes or cash.
Government loan according to the economic entity performs the following functions:
All functions of state credit to support the economy at a sufficient for the operation level.
- The distribution function of a sum of liberated money to direct to those areas of the economy where they are most needed, for example in health or social funds.
- The regulatory function of credit allows the state to carry out the financial policy which it deems necessary. While regulation is control of interest rates in the credit market, the impact on the circulation of money.
- The control function of credit allows the government to control target use of borrowed funds, the timing and timeliness of their return.
Summing up, it should be noted that the functions of credit in the economy are indeed significant. Through the provision of loans, you receive the ability to control the financial relations of the market participants and conduct many transactions using cash.