What is credit?Most customers would have heard about “credit in the form of a personal loan or overdraft” as part of their banks’ products or services.
This article, prepared by the Banker’s Association of Namibian (BAN), intends to help the public understand the forms of credit available credit and for which purposes credit is extended to a customer. In subsequent articles, we will explain how to obtain it and the responsibilities of banks and their customers in granting credit.
Note that individual banks in Namibia approach credit differently and that customers must understand the products and services offered by their bank and know what they are committing to, especially when taking out a loan.
The dictionary defines the term “credit/loan or overdraft” as “the ability of a customer to obtain goods or services before payment, based on the trust that the customer will make payment in the future”.
Credit is an arrangement you make to pay later for something you buy now or with money you borrow from a bank for a specified purpose. An example is purchasing a vehicle or a house or settling a debt with a third party.
“Borrowing” implies that you will have to pay back what you borrowed. The payment period is on terms as agreed with your bank.
Forms of credit
Banks offer various forms of credit, such as loans or overdrafts, based on the customer's needs. These different forms of credit include loans to finance the following:
• Vehicles and other movable assets.
• The purchase of houses.
• The purchase of agricultural land.
• Heavy equipment for industrial use.
• Solar equipment.
• Personal needs such as personal loans in the form of an overdraft, credit card, or micro-loans
• Business loans are also referred to as “facilities” by banks.
Applying for and being extended credit by a bank is a straightforward process, but customers must be in a financial position to repay the loan according to the terms and conditions agreed to by both parties.
In the next article, BAN will focus on what the requirements are for applying for a loan and how your bank assesses your ability to pay back the loan.
Visit www.ban.na for more information on BAN activities and interesting consumer education articles on banking.