Consumer credit: how does it work?

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A consumer credit (commonly called “consumer credit”) is a loan granted by a financial organization to an individual. It is a contract clearly stipulating that an amount is granted and that this sum accompanied by interest must be reimbursed by installment payment to the lending organization. (monthly deadlines).

We can distinguish two categories of consumer credit

We can distinguish two categories of consumer credit

Affected credit

It is a loan granted for the purchase of a specific good or service, the most common example is car credit. It is said to be “affected” because the sum lent cannot be used for anything other than the purchase provided for in the contract. (If you take out a car loan, you are not entitled to pay for a trip with the sum made available to you).

  • You can subscribe a credit allocated for various purchases, (vehicle, household appliances, furniture etc … but also to finance works. They can be subscribed with an organization specialized in credit (bank or others), or As explained on the majority of the blogs of councils, it should be known that a credit in the bank costs less than when it is signed in store.

Unrestricted credit

The amount that is granted can be used by the borrower as he sees fit, (make up a bank overdraft for example or pay his taxes). With regard to unallocated appropriations, it is useful to make a distinction between two sub-categories.

  • Personal loans: whose repayment is made in the same way as the assigned credits, that is to say monthly according to a schedule provided for in the loan contract.
  • A somewhat special type of credit that can be found under different names: revolving credit, reconstitutable credit or revolving or reserve of money. It is nothing more than a reserve of money, the amount of which is capped, in which the holder can “draw” as he pleases. A payment card can be linked to this credit.

Mistakes not to make

Mistakes not to make

Knowing that depending on the type of credit, interest rates can vary considerably. It is advisable to contract a loan in adequacy with the need.

1st case: For the purchase of a specific asset such as a car, it is necessary to take out an assigned credit, in this case a car loan. The rate will be lower than that of a personal loan.

2nd case: A need for cash can be the subject of a personal loan, certainly the cost will be higher than that of the 1st case, but much more interesting than that of a revolving credit.

3rd case: Consumers wishing to be able to buy a good or service at any time without taking out “classic” consumer credit. May use revolving credit. However, be aware that interest rates are very high. The only advantage of this type of financing is the possibility of having the desired amount immediately.