December 18, 2019 admin 0Comment

Consumer loans are all loans that are granted to households and are used to finance consumer goods. The loan is granted either as an installment loan via a loan contract or via a credit facility.

 

Purpose of consumer loans

consumer loans

A consumer loan is always taken out by a private individual. The lender is usually a bank, but other private individuals can also issue a consumer loan. The loan amount is not limited by definition, although in practice values ​​of a maximum of USD 25,000 have been established. The term is between 12 and 72 months. With higher loan amounts or longer terms, higher loan collateral is necessary, so that we can no longer speak of classic consumer credit.

The consumer loan is used to buy goods with a short to medium life. Vehicles are usually financed with special car loans, which, depending on the collateral, can also be categorized as consumer loans. This includes in particular financing of holiday trips, interior furnishings or educational measures.

 

Securing consumer credit

Securing consumer credit

In principle, the protection of consumer loans is not very strong due to the comparably low loan amounts. The following security can be used:

  • To a certain extent, income can be seized in the event of insolvency.
  • A guarantor is responsible for defaults.

The borrower must be able to prove the income through pay slips or employment contracts. In addition, banks obtain Schufa information, in which possible outstanding claims against the borrower are recorded.

Overdraft facilities, on the other hand, are provided as blank loans and can be called up at any time. In return, the loan amounts are small, but the interest rates are very high.

 

Consumer credit – example of the award

Consumer credit - example of the award

A borrower wants to go on vacation in the summer. According to the organizer, the trip costs 2,500 dollars, of which the borrower only has 1,500 dollars in his checking account. He would like to take the remaining amount as consumer credit. Due to the low loan amount of only USD 1,000, the bank accepts the loan application, whereby the monthly net income of USD 2,300 is sufficient as security. The loan will be paid off in monthly installments within the next year.

 

Consumer credit – definition & explanation – summary

  • Consumer credit is used to finance consumer goods
  • It is always taken up by private households, usually given by banks
  • The collateralization is based on the borrower’s income or a surety

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