Thursday, January 19, 2012

Buyers Credit

Buyer's credit is the credit availed by an Importer (Buyer) from overseas Lenders i.e. Banks and Financial Institutions for payment of his Imports on due date. The overseas Banks usually lend the Importer (Buyer) based on the Letter of comfort (a Bank Guarantee) issued by the Importers (Buyer's) Bank. Importers Bank / Buyers Credit Consultant / Importer arranges buyers credit from international branches of a domestic Bank or international banks in foreign countries. For this services Importers Bank / Buyers credit consultant charges a fee called arrangement fee.
Buyers credit helps local importers access to cheaper foreign funds close to LIBOR rates as against local sources of funding which are costly compared to LIBOR rates.
The duration of Buyer's credit may vary from country to country, as per the local regulations. For example in India, Buyers credit can be availed for 1 year in case the Import is for trade-able goods and for 3 years if the Import is for Capital Goods. Every six months the interest on Buyers credit may get reset.

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