Consumer Credit

Consumer credit is a type of loan which can be used for different necessities, for example, for purchase of some product or service, for vacation or travel, for down payment of car loan or mortgage, as well as for other purposes. Despite the fact that consumer credit is short term loan, its repayment time may be 60 months or, in other words, 5 years. Consumer credit is one of the most favourable short term loans, because it has relatively low interest rates. Potential client does not need any collateral or guarantor to get consumer credit, as well as it does not have to tell the lender how the loan will be used. Consumer credit is available both at the bank and the non-bank creditors. The maximum amount of consumer credit is several thousands, unlike the maximum amount of fast loans which is only several hundreds.

If you want to get a consumer credit at the bank, you have to take into account that process may be longer and more complicated than at the non-bank creditors. At the bank you will have to fill a lot of different blanks and documents, as well as lenders will pay more attention to your income and credit history. Despite this inconvenience, bank loans have a lot of different advantages as well. If person is already a client of bank, bank as a lender is able to apply the borrower more favourable loan conditions, for example, lower interest rate. Consumer credits, unlike fast loans, do not have the same interest rates for all borrowers. Consumer credit applications are examined individually, assessing potential client’s individual situation. Of course, there is a certain percentage range within which individual interest rates are determined. Loyal clients have better chances to get more favourable loan conditions, but sometimes creditors offer attractive and especially beneficial conditions for new clients as well.

Anyone can choose to borrow the loan from bank creditors or from non-bank creditors. If you choose to borrow the loan from non-bank creditor, process for loan obtaining is much shorter and simpler than in banks. You can submit your application for consumer credit through the Internet, but in that way you can get less favourable conditions, because the connection between the lender and the borrower is not as close as in person. Requesting the loan in person, borrower has a chance to convince the lender about its ability to pay, as well as an opportunity to get more advantageous conditions for loan repayment. However, it is easier to get the consumer credit from non-bank creditor than from bank creditor. Of course, also non-bank creditors estimate the solvency and credit history of potential client, but the process of evaluation is not so strict as at banks.

To receive a consumer credit potential client must be of legal age and it must have an appropriate ability to pay and positive credit history. Ability to pay means that borrower is able to repay the loan in specified period. To assess client’s solvency lenders estimate client’s income. Lender, depending on required amount of loan, determines whether the client is able to repay the consumer credit. Monthly credit payment cannot exceed 20% – 40% from borrower’s monthly income. However, each lender has it own rules, therefore, beware and explore this information before submission of application. In case of consumer credit lender will probably ask for documents which officially prove client’s income, for example, a reference from tax revenue service or bank account statement.

Another thing to which lenders pay attention is potential client’s credit history. To receive consumer credit borrower’s credit history has to be positive. Negative credit history means that previously borrower has had difficulties with loan repayment, namely, it has debts or has regularly skipped payments. It is important to treat credit commitments responsibly, otherwise credit history may become negative. Borrowers who have negative credit history are included in special register of debtors. Debtors register helps lenders to know whether their potential clients are debtors and how they may endanger relationships between lender and borrower. If borrower is registered in debtors register, it has less chances to get the loan in near future, because negative credit history makes lenders think that client has bad solvency which may complicate the loan repayment. Everyone has to know that debtors register maintains an information about debtors and their credit history for about 10 years. If debt has been long time ago, lender may ignore it and hand out a loan, but if debt has been recently, lender has rights to reject client’s request for loan.
To receive the loan potential client must have stable and regular income, its credit history has to be positive, as well as its age must meet lender’s conditions. Of course, every lender has its own preconditions for their potential clients as well, but these are the most common preconditions. To find out concrete preconditions borrower has to consult the lender or explore an information in lender’s website. There are a lot of lenders who offer a consumer credit, because it is one of the most popular loans. To find out the best and the most favourable deal, borrower has to make a preliminary study of lenders and their offers.

The first thing which every borrower has to do is to understand the amount of necessary loan, as well as the means which will be used for the loan repayment. When it is done, borrower has to find lenders which offer consumer credits. One of the most important aspects which have to be compared, choosing the most appropriate lender, is interest rates. Every lender has different interest rates for their loans, but everyone should know that consumer credits, which are short term loans, have higher interest rates than, for example, long term loans. This is why borrowers should find a lender which offers consumer loan with a lower interest rate to not to overpay for interest rates.

Remember to compare repayment terms as well. Usually they are from 3 months to 60 months. Repayment term is determined according to amount of loan and monthly payment. The longer is repayment time, the smaller are monthly payments. The longer is repayment time, the more borrower pays for interests. Every borrower should decide which way is more appropriate for its individual situation. It is clear that no one wants to pay several hundreds for interests, but a lot of borrowers do not have an opportunity to make big payments. It is important to pay attention to penalty payments for late or skipped payments as well. Of course, none of borrowers wants to get into a situation where lender applies sanctions for delays or debts. It is recommended to explore these conditions before the submission of application for consumer credit – it can motivate the borrower to make payments timely and regularly, avoiding penalty payments. Do not forget to read more about an extension of repayment term, because no one knows whether it will be possible to repay the loan in specified term.

When you decide to borrow a consumer credit, take your passport of ID card, as well as documents which officially proves your income and go to the lender. Of course, every lender has rights to determine other necessary documents as well, therefore, if you are planning to borrow a consumer credit, find out this information before you go to the lender. Do not forget that you will have to pay some amount of money for loan processing as well, but usually this amount is not big – about 1,5% to 3% from loan amount. Application for consumer credit is for free, therefore, if you will change your mind and withdraw from the consumer credit, it will not cost you anything. Everyone has rights to reconsider the need for loan. You can change your mind even after signing the contract – you have 14 days to use the right of withdrawal, but the loan, of course, cannot be used.

When the credit contract is signed the most important task is to regularly and accurately make payments. If you get a spare income or you have formed some savings, the best idea is to repay the maximum amount of loan in order to save money on interest payments. If possible get rid of your loan before specified term, because the sooner you repay it, the more favourable it is.
Consumer credit can be used not only for different purchases and payments, but also for loan consolidation. Loan consolidation means unification of several small loans. If you have several small loans, for example, fast loans and credit cards, and you have difficulties with their repayment, you can ask your lender for loan consolidation to unite your loans in one consumer credit. Loan consolidation has several advantages. Firstly, you do not have to remember to pay several loans, but only one loan. Secondly, fast loans have short repayment time, but consumer credit’s repayment time is as minimum 3 months. Thirdly, consumer credits have lower interest rates than fast loans which means that borrower pays less for lender’s service.

Consumer credit helps to make necessary purchases and payments which cannot be done with personal means. However, remember that consumer credit, like other loans, imposes financial obligations which have to be treated responsibly. Prior to borrow loans everyone should consider the need for the loan, as well as think about possibilities to repay it.