Consumer credit: Principles, Types, Advantages and Disadvantages

Consumer credit is granted by credit institutions to individuals to enable them to finance the most important expenses, in particular to acquire durable goods. Auto credit and work credit are two forms of consumer credit.

Consumer credit is very diverse, by its very nature: it adapts to your needs, and varies according to the nature of the establishment which grants it to you. Thus, for the purchase of household appliances for example, certain establishments will offer you related loans (of the “revolving” type) which cover the amount of the purchase.

 

Types of consumer credit

Types of consumer credit

There are two main “families” of consumer credit:

  • on the one hand, the so-called amortizable loans. These are conventional loans, which, like mortgage for example, allows repayments spread over time (in the form of monthly payments). They generally contract with a bank or a specialized credit institution. There are two main types of repayable credit: personal loans, and restricted loans.
  • On the other hand, the so-called renewable credits. They are also called permanent credit or revolving credit. This type of credit consists in making available to the borrower a reserve of money which he can use for his purchases thanks to an associated card.

 

Who to contact to take out a consumer loan?

consumer loan

There are two types of players in France who share the consumer credit market: on the one hand, specialized financing establishments, which can only provide you with consumer credits. It is usually this type of establishment that establishes relationships with stores, and which allow you to buy certain goods directly on credit.
On the other hand, general banks are the only ones able to market any type of bank credit.

 

Advantages and disadvantages of consumer credit

consumer credit

The main advantage is to allow the purchase of substantial goods without this too damaging your budget, by spreading the load over several months.

Consumer loans have some drawbacks: on the one hand, they are often granted at relatively high interest rates compared to the market; on the other hand, they expose you to over-indebtedness, 86% of the files deposited in over-indebtedness commissions including a revolving credit. Finally, they are subject to misleading advertising: be careful to calculate the final TEG proposed before signing!

Loan without broker – apply now!

Consumers often feel overwhelmed by the huge supply of credit institutions. As soon as customers feel overwhelmed, they either shy away from taking further steps or make a bad investment out of nervousness. At this point in the considerations, a credit broker is usually considered. However, this usually requires high loan fees. Anyone wishing to apply for a loan without an intermediary must therefore take a few points into account.

Great savings potential

Great savings potential

Consumers who apply for a loan without an intermediary from a bank can look forward to great savings potential. The fees, which are hidden in the financing amount, are clearly noticeable for the borrower when using an intermediary. Only reputable financial service providers are documented.

In most of all cases, these requests before or during the application for a loan require a processing fee that is based on the percentage of the total loan and is not due immediately. For example, the brokerage commission that has now become unnecessary can be invested in the debt amount to the benefit of the debtor. Intermediaries are only inevitable if the taking out of a foreign loan without Credit Bureau is planned.

The best conditions for a loan without a service provider

The best conditions for a loan without a service provider

If the applicant does not have negative Credit Bureau information, a credit without intermediaries can be obtained from any credit institution. In the final move, all you have to do is prove your creditworthiness by presenting a pay slip. However, the time luxury that is lost when hiring a credit intermediary must be intercepted by the interested party. The comparison of individual loan positions is ultimately up to the potential borrower. This form of self-management in turn results in a large saving on the part of the debtor.

Plan consciously and control procedures

Plan consciously and control procedures

Despite a lack of specialist knowledge, the loan without intermediaries is a perfectly legitimate method of raising capital for the desired property. Both the Internet and other media offer enough depth of information to get the necessary overview. The information obtained forms the basis for further planning for every future borrower. The interest, processing fees and special conditions included in the loan offer should nevertheless be studied carefully and carefully.

The agreements made are only legally binding once the signature has been made under the credit contract. In principle, a loan without a qualified financial service provider is also finally possible here. Certain formalities of a legal nature have to be explained in detail by the bank so that the consumer is always correctly advised. Incorrect advice can result in immediate termination of the contractual relationship.

Revolving credit, last part of the reform

From 1 May 2011, the reform of Christine Lagarde on consumer credit begins its 5th and final part. After framing advertising and buying back credit, shortening the durations of over-indebtedness plans or registering in payment incident files (FICP), the text is finalizing consumer protection against revolving credits.

To fight against the evils of revolving credit, two new decrees enthroned the end of interminable loans and the modernization of the usury regime.

 

Conditioning of the duration of revolving credits

revolving credits

The text provides for the fixing of a minimum maturity with a duration of 36 months up to $ 3,000 and 60 months for larger sums. Although necessary, this measure represents however minimal progress insofar as fixing a minimum maturity is a procedure already used by credit organizations. This maturity corresponds to a declining rate of 3% applied to the capital due by the borrower. Since the smallest reserve of money is $ 500, the minimum monthly payment has been $ 15 for years. The decree providing for this limitation therefore establishes an already widespread practice.

 

Checking the revolving credit usury rates.

credit  rates.

On the other hand, controlling interest rates represents an important asset in the fight against over-indebtedness. In fact, very often, the interest rates on revolving loans are high and disproportionate. A practice that often allows lending establishments to ensure promotional rates to retain or acquire new customers. Henceforth, the law establishes the fixing of a rate of wear according to the amount and the use of the borrower. This second part also represents a significant advance by instituting the possibility of carrying out a maximum of two deferrals per year, leading in parallel to the blocking of the available. Sometimes used to troubleshoot certain files, this measure was neither automatic nor legislated.

With these last two measures, the consumer credit reform is finally implemented. It should help limit household over-indebtedness and protect consumers of credit. Its first effects will be appreciable from September with the next review of over-indebtedness communicated by the Good Lenders Bank.

 

Wear rate at 1 April 2011

credit loans

Based on the average effective rates applied by credit institutions during the 4th quarter of 2010, the usury thresholds applicable from April 1, 2011 have just been published:

  • 5.61% for a fixed rate home loan (average effective rate: 4.21%),
  • 5.01% for a variable rate mortgage (average effective rate: 3.76%)
  • 5.99% for a bridging loan (average effective rate: 4.49%).

For consumer loans, the law of July 1, 2010 reforming consumer credit reformed the procedures for setting the usury threshold for this type of loan.

The categories which serves as a basis for calculating the usury thresholds will now be fixed according to the amount of the loans. The law also provides for a transitional period of eight quarters for the progressive application of this reform.

During this period, the wear thresholds will be calculated in seven categories:

  • 21.47% for a consumer loan less than or equal to $ 1,524.
  • 19.53% for a revolving or an overdraft of an amount greater than $ 1,524 and less than $ 3,000.
  • 8.03% for a personal loan greater than $ 1,524 and less than $ 3,000.
  • 19.53% for a revolving or overdraft amounting between $ 3,000 and $ 6,000.
  • 8.03% for a personal loan between $ 3,000 and $ 6,000.
  • 19.53% for a revolving or an overdraft of an amount greater than $ 6,000.
  • 8.03% for a personal loan of an amount greater than $ 6,000.