Credit and Business Cycles

Flashcards covering key vocabulary related to credit, loans, and business cycles.

Credit

The ability to borrow money or access goods/services with the promise of future payment.

Installment Credit

Credit involving regular monthly payments over a fixed term until the loan is paid off.

Professionals

Typically grants service credit by offering services first and billing the client later.

Regular Charge

Account that requires full payment shortly after billing and is considered a short-term credit arrangement.

Business Cycle

Economic fluctuations around GDP’s natural growth, including phases like expansion and recession.

Peak Phase

The point in the business cycle when economic indicators are at their peak.

Personal Loan Credit

Credit commonly offered by banks and involves giving borrowers cash rather than goods/services.

Credit History

Personal quality, shown by financial history, assessed by lenders before approving credit.

Collection Area

Area of a loan department that follows up on delinquent loans and manages adjustments.

Depression Phase

Phase of the business cycle involving massive decline in economic activity, inflation, and consumer demand.

Revolving Credit

A type of credit that can be reused up to a set limit, e.g., credit cards.

Installment Plan

A plan where consumers make regular payments for high-value items like appliances or furniture.

Credit

The key driver of economic cycles that can lead to growth or downturns depending on availability.

Installment Loan

A loan that is repaid in a fixed number of payments over time.

Payment Area

A department in banks responsible for processing payments and collecting dues.

Depression Phase

A phase in the business cycle when credit availability drops and defaults increase.

Accusation Area

Area in loan departments where credit applications are evaluated and approved or denied.

Financial Accelerator Model

A model that explains how credit constraints worsen business cycle fluctuations.

Retail Credit

The credit category involving goods bought from retailers with deferred payment.

Recovery Phase

A phase where recovery starts after the lowest economic activity point.

Austrian Business Theory

A theory that links excessive credit expansion with artificial booms followed by busts.

Recession Phase

A phase in the cycle characterized by declining demand and excess supply.

Recovery Phase

Government or central bank action to stimulate lending and economic growth typically happens in this phase.

Employment and Income Stability

Criteria involving job stability and income used to assess personal creditworthiness.

Economic Stimulus

One of the economic functions of credit that refers to enhancing consumer and business spending.

Credit Approval Process

Step involving examining a customer’s financial reliability to set appropriate credit terms before allowing purchases on credit.

Invoice/Invoicing

The formal document sent after a sale that includes the amount due, payment deadline, and payment methods.

Monitoring Accounts Receivable

The process called where a business watches over outstanding customer balances and uses tools like aging reports to track overdue accounts.

Write-Off

The final step taken when a customer completely fails to pay their debt, and the business decides to stop trying to collect.

Preventing future delinquency

One practice businesses use to avoid future non-payments, such as adjusting approval rules or requiring bigger initial payments.

Credit Risk

The potential financial loss a lender faces if a borrower fails to repay their loan or meet payment obligations.

Credit Risk

Poses a problem for lenders in terms of cash flow and operations because it leads to missed payments

Personal Loan

A type of financial arrangement allows individuals to access goods, services, or money now and pay for them later.

Credit

The financial trust given to individuals that lets them defer payment for purchases or services.

Credit Line

A type of bank credit provides a pre-approved borrowing limit that borrowers can access as needed, paying interest only on the amount used.

Overdraft

Bank service allows customers to spend more money than they currently have in their account, usually with interest applied.

Credit Card

Credit option allows users to make repeated purchases within a set limit and repay over time, often monthly.

Credit Line

Credit facility that charges interest only when the borrower uses a portion of the approved limit.

Personal Information Verification

Part of a credit investigation includes checking a borrower’s identity, job status, and financial background.

Credit History Review

Process involves reviewing a borrower’s past loans and payment behavior to evaluate their financial responsibility.

Financial Capacity Evaluation

Step in credit investigation analyzes a borrower’s income and assets to determine their ability to repay a loan.

Collateral Appraisal

Aspect of credit investigation involves evaluating the worth of property or assets pledged to secure a loan.

Credit Evaluation

The process used to assess how reliable a person or business is in repaying borrowed money.

Promissory Note

Type of credit instrument serves as a written agreement in which one party promises to pay a specific amount of money at a set time.

Letter of Credit

Document issued by a bank assures the seller that payment will be made on behalf of the buyer.

Open Book Account

Credit tool is used by sellers to track credit transactions and payments owed by buyers over time.

Credit Money

Type of credit instrument is generally accepted as a medium of exchange.

Bank Notes

Form of credit money is a central bank’s written promise to pay a bearer a certain sum on demand.

Treasury Certificates

Kind of Treasury-issued credit money is either fully or partially backed by gold reserves.

Short-Term Loan

Type of loan requires repayment within a short time, typically within a year.

Public/Government Credit

Represents a government’s ability and willingness to borrow funds.

Direct Loan

Type of loan allows the borrower to receive the full amount requested, with principal and interest paid upon maturity.

Discount Loan

Type of loan deducts the interest upfront, giving the borrower the net proceeds only.

Interest

What the borrower does not receive in this loan after the interest is deducted at the start

Face Value/ Full loan amount

The repayment obligation at maturity in a discount loan.

Instrument Reliability

What people evaluate before accepting other credit instruments apart from credit money?

Fiduciary paper money

Kind of paper money may be only partially backed by gold reserves?

Full Repayment

What is the nature of a direct loan in terms of disbursement?

Full Loan Amount is given Upfront / Full Disbursement

What is the nature of a direct loan in terms of disbursement

Partial / Net Disbursement

What is the nature of a discount loan in terms of disbursement