What is behind the term “consumer credit”? Let’s try to learn more …
Understanding consumer credit
Consumer credit is on the rise. More and more individuals are using it to deal with vehicle financing or a piece of equipment for the home. Discover our file on the different types of consumer credit, the grouping of credits, the lenders, their rules as well as the repayment formulas.
Definition of consumer credit
Granted by banks or specialized financial companies to individuals, consumer credit is a type of credit whose use is strictly regulated by the Code of Economic Law (CDE). Thus, consumer credit is only intended to finance current equipment goods as well as services.
This credit can be used to pay for consumer goods such as a car, computer equipment, household appliances, furniture, or the organization of his wedding with a wedding planner. Finally it is also possible to use this loan to pay taxes or debts. However, consumer credit can not be contracted for the purchase of real estate (although the personal loan can be used to finance works).
Who can benefit from consumer credit?
Consumer credit is only granted to a natural person whose purpose is private. Thus companies can not resort to this type of credit. Similarly, a natural person wishing to obtain a loan for exclusively professional purposes can not take out a consumer credit. Nevertheless a professional wishing the total amount to acquire a car for his personal use can use it occasionally for his professional activity.
The different types of consumer credit
Although the term consumer credit is common, there are different forms. It is even possible to subscribe to several of these credits. Since the rates are high, the risk of over-indebtedness exists. Some of these credits allow a pooling of credits to reduce the amount of repayments.
The installment loan
Flexible and easy to obtain, this loan determines payment terms (duration and amount). It is regularly used to consolidate credits. The downside, interest rates can be important.
The installment sale
Credit agreement for the purchase of a good or service in several installments.
Also known as ‘leasing’ or ‘LOA’ (for lease with option to buy), leasing is often used for a car. This credit is similar to a leasing agreement, the amount of which goes to the lender until the end of the lease. At this date, the borrower can buy the property.
The opening of credit
Line of credit granted by the bank to offset personal expenses.
The bridge loan
When an owner of a property for sale wishes to buy a new property, he enters into a bridge loan until the sale of his first property is completed. The funds are loaned over a short period and repaid at the end of the contract.
The ease of discovery
The bank’s overdraft facility is also a form of credit. The bank gives an overdraft to the individual to make payments.
The personal loan
The personal loan consists of a sum paid in one go. The borrower repays in fixed monthly installments. The personal loan can be used to finance work or a pool of credits.
Who to turn to for a consumer credit?
Consumer credit is issued by general banks, specialized financial companies or credit brokers. Car salesmen, supermarkets and other traders also offer consumer loans. However, they are in most cases intermediaries.