ELI5: Explain Like I'm 5

Credit (finance)

Credit is like borrowing money from someone with a promise that you will pay them back later. Just like when you borrow a toy from someone and promise to give it back later.

People and companies use credit to buy things they couldn't afford to pay for all at once. So if you want to buy a bike and you don't have enough money right now, you can use credit to buy it and pay it back in smaller amounts over time.

When you borrow money using credit, you have to pay back more than you borrowed because the person lending you the money charges you for letting you borrow it. This charge is called "interest". Interest is like when your parents give you money for doing your chores, but they also take a little bit from the money you earned as a fee for using their money to spend.

Credit is helpful because it allows people to buy things they wouldn't be able to buy otherwise. However, it's important to make sure you can pay back what you owe, because not doing so can lead to big problems, like having to pay extra fees, and not being able to borrow money in the future. So, always look carefully at your budget and make sure you can afford to pay back what you borrow with credit.