What Are The Classifications Of Credit Instruments?


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Katie Harry Profile
Katie Harry answered
The basic purpose of Credit instruments is their use in place of currency.
Forms of Credit Instruments:
Check is one of the earliest credit instruments and is used by people as a way of paying for products and services from the funds placed in your bank account.

The second one is Credit Card in which the basic idea is creating a contract between the buyer and the seller and the seller extends credit and expects the card issuer to cover it.  In return, the card holder has to pay back the debt to the card issuer along with the applied interest and other charges.

The third form of a credit instrument is the promissory note in which the lenders give funds to debtors with the expectation that the amount would be paid in full in the future. These are called notes and they sometimes have date at which the payment has to be done.
Ellie Hoe Profile
Ellie Hoe answered
There are four types of credit instruments including Simple loans, Fixed loans, Coupon bonds and Discount bonds. These credit instruments are different on the basis of their maturities and pattern of payments. A simple loan is the first credit instrument which matures on the specified date and the borrower only has to pay principle plus interest at the date of maturity. During the period of the loan, no interest payment in paid. On the other hand, in the fixed loan, the payment plus the interest is allocated in different periods and the borrower only pays the fixed payment (containing a part of principle and interest) after a period. Till maturity of the loan, the borrower does not have any further liability. In coupon bonds, a coupon payment is paid to the creditor and at maturity face value of the bond is paid. In discount bonds, the face value plus the interest is paid on the maturity date.

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