what is bank credit 
bank credit is the amount of credit available to a business or individual from a banking institution in the form of loans bank credit therefore is the total amount of money a person or business can borrow from a bank or other financial institution a borrower s bank credit depends on their ability to repay any loans and the total amount of credit available to lend by the banking institution types of bank credit include car loans personal loans and mortgages understanding bank creditbanks and financial institutions make money from the funds they lend out to their clients these funds come from the money clients deposit in their checking and savings accounts or invest in certain investment vehicles such as certificates of deposit cds in return for using their services banks pay clients a small amount of interest on their deposits as noted this money is then lent out to others and is known as bank credit bank credit consists of the total amount of combined funds that financial institutions advance to individuals or businesses it is an agreement between banks and borrowers where banks make loans to borrowers by extending credit a bank essentially trusts borrowers to repay the principal balance as well as interest at a later date whether someone is approved for credit and how much they receive is based on the assessment of their creditworthiness approval is determined by a borrower s credit rating and income or other considerations this includes collateral assets or how much debt they already have there are several ways to ensure approval including cutting the total debt to income dti ratio an acceptable dti ratio is 36 or below 1borrowers are generally encouraged to keep card balances at 20 or less of the credit limit and pay off all late accounts banks typically offer credit to borrowers who have adverse credit histories with terms that benefit the banks themselves higher interest rates lower credit lines and more restrictive terms special considerationsbank credit for individuals has grown considerably as consumers have become used to relying on debt for various needs this includes financing for large purchases such as homes and automobiles as well as credit that can be used to make items needed for daily consumption businesses also use bank credit in order to fund their day to day operations many companies need funding to pay startup costs to pay for goods and services or to supplement cash flow as a result startups or small businesses use bank credit as short term financing types of bank creditbank credit comes in two different forms secured and unsecured secured credit or debt is backed by a form of collateral either in the form of cash or another tangible asset in the case of a home loan the property itself acts as collateral banks may also require certain borrowers to deposit a cash security in order to get a secured credit card secured credit reduces the amount of risk a bank takes in case the borrower defaults on the loan banks can seize the collateral sell it and use the proceeds to pay off part or all of the loan because it is secured with collateral this kind of credit tends to have a lower interest rate and more reasonable terms and conditions banks normally charge lower interest rates on secured credit because there s a higher risk of default on unsecured credit vehicles unsecured credit on the other hand is not backed by collateral these kinds of credit vehicles are riskier than secured debt because the chance of default is higher as such banks generally charge higher interest rates to lenders for unsecured credit examples of bank creditthe most common form of bank credit is a credit card a credit card approval comes with a specific credit limit and annual percentage rate apr based on the borrower s credit history the borrower is allowed to use the card to make purchases they must pay either the balance in full or the monthly minimum in order to continue borrowing until the credit limit is reached banks also offer mortgage and auto loans to borrowers these are secured forms of credit that use the asset the home or the vehicle as collateral borrowers are required to make fixed payments at regular intervals usually monthly bi weekly or monthly using a fixed or variable interest rate one example of business credit is a business line of credit loc these credit facilities are revolving loans granted to a company they may be either secured or unsecured and give corporations access to short term capital credit limits are normally higher than those granted to individual consumers because of the needs of businesses their creditworthiness and their ability to repay business locs are normally subject to annual reviews 