Banks have been in existence since ages, it seems and all of us need to do banking in our daily lives. We deposit and withdraw money, but majority of us do not understand what really a bank is and what its basic functions are. What is clear and obvious to all of us is that banks accept money from us and keep it safely for us to use later on. Banks also transfer funds and they also provide us with loans. Suppose you receive a check from your friend who lives in another state. You don’t need to travel to that state and your friend’s city to withdraw the money. Your own bank gives you cash if you deposit the check in your account. It only charges a nominal fee for its services. Just imagine traveling far to get your check cashed. Banks also issue currency notes. If you require a few $100 bills, you can ask your bank and it will do so if you have the amount in your account.

The reputation of a bank depends upon its quality of services and its reliability. If you go to a bank where the staff is rude or does not behave, you will certainly not open an account there. It is the word of mouth that makes a bank famous among the customers. As all of us keep cash with banks, banks acquire a lot of funds and they utilize it to give out loans and also to make investments for attractive returns as they are required to pay interest to all of us on our deposits.

Banks give their customers check books which are of immense use to us. We can pay our utility bills by issuing checks, and we do not need to keep cash with us all the time. If we have money in our account, we can send money to our relative or friend who may be thousands of kilometers away in an instant. Banks do it for us through electronic transfer. Similarly transfer of funds from one account to another is also possible with the help of banks. Banks also facilitate payment of our taxes like income tax, sale tax and many other taxes. We do not need to go to the concerned department to pay our taxes. By just paying to our bank through a check in favor of the concerned department, our work is done.

Banks are an integral part of our lives and help us at all times.

Credit is a system of providing resources by a creditor (lender) to a debtor (borrower). In this system the debtor need not return the resource immediately; he can later pay back the resource or materials of equal value (with interest). It is not necessary that credit is based on formal monetary system. In barter economics, credit concept can be used. Normally movements of financial capital are dependent on credit or equity system. The cost of credit is the extra charge that should be paid by the borrower over and above the amount borrowed. The interest, arrangement of fees and other charges are included in it. There are some mandatory charges and some optional charges also.

Some common form of consumer credit is credit card, store card, personal loans, retail loans and pret immobilier loans. There are different ways by which interest and other charges are presented. Lenders have to quote all mandatory charges in the form of an annual percentage rate or ARP under many legislative regimes. Optional charges are not included in ARP calculation. Normally credits can be paid by the means of money. However, when the debtor is not able to pay the money in time limit some time simulation pret is done by the creditor and debtor by the means of some discussion. After the time limit is over the creditor take away the mortgage.