Consumer credit is a loan taken for consumption. No collateral is required to take out a consumer credit and you can apply for it from your bank or other credit granting companies. The entire amount applied for is paid into the applicant’s account at one time and the loan is usually repaid monthly. A consumer borrower is allowed to use the credit for whatever they want, and lenders generally do not ask for what purpose they want to take a consumer credit.
Often, consumer credit is taken for example for renovations, home purchases or for a vacation. Sometimes, consumer credit may be used to purchase small consumer products. For example, the purchase of electronics and home appliances with installments is also consumer credit. This is only a consumer credit in the form of an overdraft. The company where the customer buys the product in installments immediately gets their money from the finance company and the customer repays their debt to the same finance company in monthly installments.
What does consumer credit cost?
Interest rates on consumer loans are generally significantly higher than interest rates on secured loans such as mortgages. At its worst, the annual percentage rate of charge on consumer credit can be up to 20% or even higher. However, by comparing consumer credit companies, it is also possible to find a consumer credit at a reasonable rate of up to 5%.
The interest rate on a consumer loan may also vary depending on how much the lender estimates the applicant’s ability to repay the loan on time. If the financial situation and credit history are good, low-interest consumer credit is usually much easier to find. Many lenders do not even give consumer credit to, for example, an unsecured applicant.
What kind of income should the applicant have?
Usually, consumer credit is granted only to applicants who have a regular income. For example, the applicant is often required to have a monthly income of USD 1,200 for the last three months. And unfortunately, any income is not eligible, but income must be a regular income from employment or retirement. There may also be age requirements for granting consumer credit. It is also often required that the applicant has a permanent address .
What to consider before applying for a consumer credit?
First and foremost, before you apply for a loan, it’s a good idea to make a realistic calculation of how much you can repay the loan each month. Underestimate the loan repayment amount rather than too high. If you imagine that you can pay off your consumer credit faster than you really can, you may end up with more debt.
If you come to the conclusion that you will be able to pay off your consumer loan repayments, the next step is the choice of the financial institution. It is never a good idea to take consumer credit from the first financial institution that comes into sight. It is a good idea to submit applications to a number of different financial institutions to identify alternatives. If you only apply or request an offer, this is not yet binding and you do not have to pay anything. For example, interest rates on loans, other expenses and payment times vary widely. So just by comparing, you can find the most suitable consumer credit for you.
When applying for a consumer credit, it is worth paying attention to the actual annual percentage rate of credit. Some financial institutions may advertise low interest rates, but there may be all sorts of side costs associated with credit that raise the real APR much higher than what is suggested. So remember to always read all the terms and conditions of your consumer credit and check any extra charges so that you don’t have any unpleasant surprises.
As long as you do your background work carefully, consumer credit can be a very worthwhile option in the event of some unexpected high cost. These are almost impossible to avoid, and it may not be possible for everyone’s salary to save emergency funds for such situations. With a consumer credit, you can spread the cost of an unexpected expense over several months, without the expense of having to pay other bills or buy food, for example.
What are Consumer Credit Borrowers?
There are really different types of people amongst consumer borrowers. There is no particular type of person who would take the majority of consumer credit. Consumer loans are taken by both low and low income people. Consumer loans are now as common as mortgages.