Classification Of Finance

        Finance can be classified into two kinds.

1. Consumer Finance
2. Business Finance
     (i) Short Term Finance
     (ii) Long Term Finance
                 (a) Capital (Owner's fund)
                 (b) Loans and bonds (Creditor's fund)
                 (c) Retained earnings (Owner's fund)
      (iii) Intermediate Loans

                             CONSUMER FINANCE
   It is personal or domestic finance which a persons needs to live his life. Consumer finance is met by personal income and by loan.

            SOURCES OF CONSUMER FINANCE
   If personal needs are met by loans the following sources and types of consumer finance are available.
1. Charge account
2. Hire-purchase / installment sales
3. Cash loans
4. Real estate loans
5. Credit card

1. Charge Account
           This is the commonest type of credit finance popular all over the world. Consumers, both ladies and gents, open an account with shops and store from where they buy on credit throughout the month and pay off at the beginning of the next month. The usual period of credit is one month. Those who pay off their debts regularly are considered to be good and reliable consumers. Those who are poor in paying off find it difficult to buy on credit.
            The charge account is interest-free but the customer cannot receive cash discount. This short-term loan is unsecured i.e. no gurantee, surety, collateral or security is required.
            The account incurs cost on the seller. He has to meet the expenses on investigation, risk, collection, reminders, phone calls, book-keeping, etc.....
             Charge account is common in home delivery of newspapers, magazines, milk. The main disadvantage of the account is that the accountholder  is inclined to excessive and unnecessary buying and at the time of payment they feel over-burdened.

2. Hire Purchase/ Installment Sales
            The hire purchase or installment sale is a kind of credit allowed to consumers. Like in the charge account credit is not in the form of cash; it is in kind.
            This kind of consumer finance is also immensely prevailing everywhere. it is most used by salaried or those people who belong to low or middle income groups.
             This method of finance prompts consumer to hire-purchase TV, furniture, cars, VCR, refrigerators and other home appliances. To avail this opportunity the buyer has to pay on the spot around 10 to 25 percent of the total price. This payment is known as down payment. The balance is payable in six, twelve or eighteen months equal installments. The installments include interest. The greater the period the higher amount of interest is charged.
              The hire-purchase is based on agreement between the seller and the buyer according to which the delivery of the purchased item is made immediately on the receipt of down payment.The possession is held by the customer and the title to ownership rests with the seller. Once all due installments are cleared the title also goes to the buyer. If he fails or defaults in the payment the buyer is deprived of the possession of the articles which goes back to the seller.
               The items sold under this scheme are generally durable consumer goods.

3. Cash Loan
                First two loans were in kind. Customers and consumers, however, may need cash to meet other requirements. Cash loans can be had from these sources.

1. Commercial Banks
2. Small loans companies
3. Credit unions
4. Life insurance policy Loans
5. Pawn shop / pawn brokers
6. Relatives and friends
7. Loans out of provident fund

4. Real Estate Loan
              People may borrow for building or buying houses. House building finance companies and other specialized financial institutions cater to such needs. Loans provided for such purposes are referred to as real estate loans, which have the following attributes:

1. They are long term loans the period of which ranges from 10 to 30 or so years.
2. Rate of interest is worked out on the basis of the period of loans.
3. These loans are secured.
4. The title of ownership to the property rests with the creditor / lender.
5. The amount of loan is usually  in hundreds to thousands.
6. Loan providers are house building finance companies and other specialized finance institutions.

5. Credit Card
           It is a modern method of financing daily purchases at retail level. It is in fact then means of financing of accounts receivable or replacing the charge accounts maintained by the retailers, customers. Commercial Banks sell credit cards of various companies such as visa, master, etc... The bank charges interest from both the retailer and the user. The card relieves the holder of the problem involved in carrying cash and facilities buying  at the retailing outlets and getting hotel services without fear of falling short of money.