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Personal Credit Management (Credit concept in Islam (Process of managing…
Personal Credit Management
Credit concept in Islam
Process of managing wealth through borrowing
Deals with how a person enhance wealth
Honesty and responsible is more important
Borrower and Lender responsibility:
Borrower’s responsibility :
Pay back as the debt as promised.
Write a will that stated about the debt.
Lender’s responsibilities :
Do not charge an usury on the borrowed amount.
Do not force the borrower to pay early than the agreed period.
Applying For Credit
Before applying for any credit the bank will check the history of the borrower from a system call Central Credit Reference Information System (CCRIS) and Credit Tip-Off Service (CTOS)
What creditors look for
Character - Do you pay bills on time?
Capacity - Can you repay the loan?
Capital - What are your assets and net worth?
Collateral - What property do you have to pledge that the lender can repossess if you default on the loan?
Conditions - What economic conditions could affect your ability to repay the loan?
CREDIT
Advantages :
Convenient when shopping
A cushion for financial emergencies
Current use of goods and services
Disadvantages :
Temptation to overspend
Failure to repay loan may lead to loss of income
Credit costs money
Types of Credit
Consumer Loan (Instalment Credit)
Open Accounts Credit (Revolving Credit)
Alternatives modes of Credit
Card Facilities/ Services
Credit Cards
Charge Cards
Debit Cards
Form of payment facility whereby the card holder account is debited immediately once it is used at the participating outlet.
Ensure the amount available in the savings or current account is sufficient.
Suitable for customers who want to make payment of goods and services on credit.
Seen as a form of delayed cash payment.
Ex: American Express
Given out to individuals with a credit limit.
It allows us to make purchase without immediate cash payments
It does not require cardholders to pay the bill in full each month
The key element in card services is purchasing something without involving any cash
Individuals are given credit limits as a form of advance by the banks for any purchases made.
Management of Credit Cards Usage :
Pay as much as possible.
Limit the usage to important things only.
Pay in cash until the credit balance is fully settled.
Refinancing
Purpose : To reduce cost of financing.
Al-Rahn
A customer can borrow some amount of money from the operators by surrendering his valuable goods for specific periods.