Understanding the credit appraisal process in nepal

1. Understanding
Credit!

2. What Is Credit?
Credit: an arrangement that allows consumers
to buy goods or services now and pay for
them later.
When you using a credit card
to charge purchases,
you must usually pay
a finance charge.

3. Finance Charges
Finance Charge: the total amount a purchaser must pay for
the use of credit (interest charges & fees)
3 Factors Affect Your Finance Charge:
1. Amount of credit used
-The more you charge, the more interest you pay.
2. Annual Percentage Rate (APR)
-The higher the interest rate, the more finance charges you pay.
3. Length of Repayment Time
-The more time you take to repay, the more interest you pay.

4. Advantages Of Using
Credit
#1: The use of goods and services as you pay for them.
Example: Driving a car as you pay for it
#2: The opportunity to buy costly items that you might
not be able to buy with cash.
Example: Can you imagine paying cash for a brand new car?
#3: A source of cash for emergency or unexpected
expenses.
Example: Medical, automotive, etc.
#4: Convenience.
Example: Don’t have to carry large amounts of cash.

5. Disadvantages Of
Using Credit
#1: The reduction of future income.
Example: Spending future income now and living beyond your
income
#2: Expense.
Example: Using credit usually costs money.
#3: Temptation.
Example: Easy to spend money you don’t/won’t have.
#4: The risk of serious consequences if you misuse credit.
Example: Failure to pay debts on time, bankruptcy, repossession,
damaged credit score

6. Types of Consumer
Credit
Sales Credit: when you buy goods and services
with a credit card or a charge account.
– Example: Charge Accounts or Credit Cards
Cash Credit: when you borrow money.
– Example: Loans

7. Types Of Credit Cards
Travel and Entertainment Cards: youmust pay entire bill each
month except for travel-related expenses.
– No credit limit, minimum monthly payments at ≥18% APR on
travel-related expenses
– Example: American Express
Company or Retail Store Cards: permit you to charge purchases
only with the merchant issuing the card.
– Credit limit, minimum monthly payments, APR varies
– Example: Macy’s Card
General Purpose Cards: issued by banks and can be used at
many places around the world.
– Credit limit, minimum monthly payments, APR/fees vary
– Examples: Visa and MasterCard

8. Establishing Credit
4 Steps to building a sound financial reputation:
1. Start with a job.
-Show that you can hold a job and earn money
2. Open a savings account and save regularly.
-Saving show financial responsibility
3. Open a checking account and manage is carefully.
-Show you have experience with handling money
4. Apply for a store or gas station credit card.
-Make small purchases and pay your bill

9. Credit Rating
Credit Rating: the creditor’s evaluation of a person’s willingness
and ability to pay debts.
Credit Report: a history or record of a person’s financial and credit
practices.
Credit Score: numerical expression of a person’s credit worthiness
(based on credit report)
Credit scores fall between 300 and 850
• < 620 = high risk borrowers
• 620 – 699 = ok to good
• > 700 = excellent

10. The 3 C’s Of Credit
A person’s credit rating is
measured by…
The 3 C’s of Credit
1. Character: responsible
financial history
2. Capacity: earning power &
employment history
3. Capital: financial worth
(home, car, savings…)

11. Maintaining A Good
Credit Rating
• Only use as much credit as you can
comfortably repay
• Pay bills on time
• Keep accurate records of charges,
statements, and payments
• Contact credit card company immediately
if you cannot pay your bill on time
• Resolve billing errors promptly