Consumer Credit for Individuals

Would you like to make new purchases, but you can not pay with your savings? You will be surprised what alternatives are available to finance your purchases. Numerous banks offer consumer loans . Although this is a standard installment loan, there are a few differences that serve the purpose of being able to purchase certain products. But even if the credit offers appear tempting at first glance, you should – before signing the contract – make a credit comparison.

What is a consumer credit?

Consumer loans are generally scarcely different from other types of loans. You submit the loan application to a bank and then – after checking your creditworthiness – receive the amount. Repayment is in monthly installments. Those consist of interest payments and a repayment portion. The money the bank provides can be freely used. Whether you use it to repair the car, your next vacation or a new facility is up to you. However, there are also consumer loans that are earmarked, so that the money may only be used for a specific purchase. If the installment loan is so earmarked, it can only be used for the repayment of the purchase price. Such loans are also offered again and again as ” car loan “, “reorganization loan” or “modernization loan”.

The advantage is that the annual interest rate on earmarked financing is lower. Ultimately, the bank can estimate in advance the risk of whether or not you are experiencing financial difficulties. It should be noted that processing fees for consumer loans may no longer be charged. Therefore, if fees are estimated, they do not have to be paid. If you have paid processing fees, you can reclaim them on the basis of the Consumer Credit Act (KKG). For other credit fees – such as account maintenance fees – the law does not apply. This aspect should also be taken into account when comparing financing. The total burden shows how expensive the consumer credit actually becomes, as all other costs – such as the account maintenance expenses – are included in this item.

Which properties are typical for consumer credit?

  • The terms are rather low; As a rule, the terms are between 24 and 48 months
  • The loan amounts are mainly in the four-digit range
  • Such financing is used exclusively for consumer goods such as vacation, cars or goods from mail order companies
  • The loan amount is either freely available or subject to a purpose
  • Repayment is in monthly installments
  • The interest rate is relatively low
  • The financing amount will be transferred to the checking account
  • The processing time is relatively short, so that again and again the instant loan is mentioned
    Consumer loans as a flexible financing option

As already mentioned, such financing can be used for all kinds of goods. However, such a loan is also available as a debt rescheduling loan if several financings are already active and should be consolidated at the end. Consumers predominantly opt for a consumer loan when four-digit amounts – in the middle range – are to be financed. These include high-quality multimedia systems, interiors or even used cars.

In theory, there is no maximum amount. In practice, however, maximum amounts of 50,000 euros are not uncommon. In very few cases, credit providers also grant amounts up to 75,000 euros. Minimum amounts must also be taken into account; mainly the lower limit is 500 euros. In rare cases, such financing is also provided for sums starting at 200 euros. The terms are also flexible. It should be noted that at shorter terms and at the same time the costs decrease. For longer maturities, you must consider the longer payment of interest. On average, terms between 24 and 48 months are chosen. But there are also loans that are already paid after 12 months or only after 144 months. Such financing is often referred to as small loan.

In the US, consumer credit has become an integral part of everyday life

In the US, financing used for consumer goods has become commonplace for residential consumers. In Europe, consumers are still skeptical and try in advance to save themselves capital in order to then buy the consumer goods. Nevertheless, there are situations that are not predictable in advance, so it is often essential to take out such a loan. For example, when high repair costs for the car are due or sometimes urgent renovations must be made in the house. These are sometimes the reasons why almost all European credit institutions already offer consumer loans. Today, banks can barely afford to forgo such funding opportunities. Probably because the competition – mainly by online banks – is getting bigger.

However, the ever-increasing competition is also the advantage of the customer. Because you have the opportunity to compare the different offers and in the end to choose yourself, which bank has the best deal. Such a comparison is done today on the Internet. For this you need neither a technical know-how, nor any unusual PC knowledge. In the end, only the key data – loan amount, term and desired monthly rate at the credit provider – must be specified so that the portal presents an overview of what conditions are currently offered by the institutions.

The question of creditworthiness

Of course, the bank would like to secure but also; Even if loans are granted faster today than a few years ago, you still need to be able to present security and be credible in presenting your creditworthiness. For this reason, the following documents should be submitted:

  1. Salary statements of the last months
  2. Asset security such as securities, real estate or life insurance
  3. Unregistered credit score information
  4. Confirmation of an indefinite employment relationship

If there is a negative entry in the credit score, credit institutions do not grant financing. However, that does not mean that no credit can be granted; There are a lot of reputable credit intermediaries who – despite the negative credit score entry – somehow manage to get a loan offer. Of course, one will primarily come into contact with institutes that advertise in advance with the waiver of a credit score query. It is important that here offers are perceived, which is not associated with horrendous costs. Because even if more and more reputable suppliers can be found on the market, that does not mean that there are no longer any “black sheep”.

What is the interest burden on a consumer loan?

Based on the characteristics of consumer credit, the interest rate level is slightly above average. The credit providers do not need great collateral, nor do borrowers need high sums and long maturities. All factors that naturally affect the interest rate. Nevertheless, compared with other financing, the interest rate level is relatively low, as there is hardly any interest charge – due to the size of the loan and the term. Today there are already such financings, which have an effective interest rate of 3 percent (per year). The value can – depending on the creditworthiness – be lowered even further. If you assume an average interest rate between 4 and 5 percent, you will surely find the right loan in the end.

Conclusion on consumer credit

Consumer credit or consumer credit is very popular, especially in Germany. Ultimately, it not only serves to finance everyday purchases, but is also relatively flexible, with reference to the possible loan sums of between 500 and 50,000 euros. However, before the loan is finalized, several bids should be obtained and compared. Only then you have the guarantee that you have actually chosen the cheapest loan offer.

Note: Consumer loans with low interest rates are often a tempting offer that, as the name implies, can be used for consumption. Nevertheless, borrowers should carefully consider when choosing and deciding on a consumer loan , if the loan is really meaningful and urgent, because the consumer must repay or repay the entire loan amount in any case. Also, credit customers should not lose track, because often run this small loans several times in parallel (eg for purchases such as TVs, furniture, washing machines, etc.) and then accumulate many small loan amounts, but in total can add up to a large repayment sum.