In the past buying luxury goods such as premium cars, air conditioners, and smart phones were out of the reach for the general section of the society. But, in the last few years there has been tremendous change in the banking and financial sector that also helped to redefine the word "premium" and let millions across the globe turn their dreams into reality.
The word finance means arranging funds required to buy some assets or exchange for goods and services. Historically, debt finance or loan was the most prevalent type of financing. Loans in the past were often non-standardized and high interest bearing. The exorbitant loan rates discouraged people to take loans or save the option only in-case of emergencies, but buying luxury goods were out of question. However, financing' in modern world has a different perception and structure.
Types of Financing
The concept of finance is very simple and it is related to economics. To make it simple consider that our economy is closed (meaning that goods & services do not leave our country) and certain amount of money is circulating in the hands of the people. So, basically we can classify two sections:
- People having surplus income
- People having deficit or need finance
Form the above it is clear that finance is an important part of our daily life and that there is always a taker' for every giver'. The one who gives loan is financer or loaner or creditor and the recipient is called debtor. But, there is a price that the debtor has to pay which is in the form of interest. This interest is charged by the financer. The interest rate is determined from various factors like,
- Inflation rate
- Economic conditions
- Risk perception or debtor's credit history
- Local rates and benchmarks
Now, that the basic are clear it will be important to note that the two types of financing namely, Personal Finance and Business Finance vary in structure and rates.
Personal Finance
The purchase of an expensive smart phone or luxury car that you have always dreamed of would fall under this category. They are customized according to needs of the customer. Personal finances are mainly characterized by
- Easy payment options
- Flexible time horizon
- Lower rate of interest
- Sometimes no penalty for EMI overdue
- Zero down-payment option
Thus, the objective of this type of financing is to help people to purchase goods and services. This is a win-win situation because on one hand the sales of companies enhance, banks & financial companies earn interest, money flows in economy, and on the other hand you get to experience your dreams in practical world.
Business Finance
They are structured more professionally, more standardized and regulated. The rates in business financing are much higher than personal finance. These loans are generally taken by companies whose trade and transactions are beyond the reach of general man.
Conclusion
To sum it up, finance or loan schemes assists us to purchase our dream car or smart phone by suitable funding options. Click here these options help us to pay the bill or invoice in multiple payments spread over months.
