Consumer credit is either an unrestricted credit or a credit allocated to the purchase of a good or service. In this article, we will tell you all about consumer credit and how it works.
Consumer credit is credit granted to an individual by a bank or a credit institution. It allows you to finance everything you want, excluding real estate.
For several years now, consumer credit has been strictly regulated by law in order to limit any abuse.
The amount of this credit is between 200 and 75,000 $, with a minimum duration of three months. If several consumer loans can be combined, however, the totality of the borrower’s monthly credit payments must not exceed 33% of his income, in order to protect him from over-indebtedness.
Consumer credit has two distinct categories:
- The appropriations allocated for the purchase of a specific asset;
- Unrestricted credits for free use of the borrowed amount.
The following operations are also considered to be consumer loans:
- Credit consolidation operations, when they only concern consumer loans or when the share of real estate loans is less than 60%;
- Works credits, even beyond $ 75,000, provided that the credit is not guaranteed by a mortgage or a guarantee;
- Bank overdrafts repayable in a period exceeding one month;
- Free credit for more than three months;
- Rental with option to purchase (LOA).
How does consumer credit work?
As a reminder, consumer credit is characterized by:
- Amounts between 200 and 75,000 $;
- Duration from three months minimum to a few years;
- An undemanding obtaining.
Like all credit, consumer credit is a contract between a lending institution and a borrower, where the former undertakes to lend a defined sum of money and the latter undertakes to repay it.
Consumer credit includes:
- The loan capital;
- The APR (the annual effective annual rate);
- The duration, amount and number of monthly payments;
- Any guarantees and insurance;
- The total cost of credit.
Consumer credit is governed by the Consumer Code and provides the borrower with a right of withdrawal of fourteen calendar days.
Which consumer credit to choose?
The choice of your consumer credit must be made according to your project.
It depends :
- The amount to borrow;
- The desired duration;
- The type of project.
The consumer credit affected
The appropriation allocated is intended to finance a good or service indicated in the contract. It has the particularity of being entirely dependent on the good to be financed and vice versa. It is nevertheless important to indicate on the sales contract that it is conditioned to obtaining credit.
When the borrower takes out an affected loan, he obtains a guarantee with it:
- If the good or service is defective or undelivered, the borrower does not have to start repaying the loan, the sale and the credit can be canceled;
- If the credit is refused, the borrower is not required to honor the promise to purchase and therefore does not end up with property on his hands that he cannot pay.
The credit affected has the disadvantage of being attached to a service or a good but the advantage of obtaining the credit and the good or neither.
The auto-moto loan is the most widespread affected credit. It allows the borrower who does not have savings or who does not wish to use it, to start repaying his credit when delivered from his vehicle.
The works credit can be allocated or not allocated. It is very often affected when the borrower has recourse to professionals and for substantial work.
Unaffected consumer credit
Unrestricted credit allows the borrower to use the borrowed amount as desired. This is a very flexible financing solution since it requires no justification for the destination of the funds.
Obtaining credit and purchasing the good or service are therefore completely independent here. This independence has the advantage of freedom but the main drawback remains that in the event of a dispute with the seller and non-delivery of the goods, you are required to repay your credit according to the terms of the contract.
In addition, if you do not get your financing and you have already signed a purchase order you will be unable to pay for the property if you do not have savings on hand.
Revolving credit is a type of unrestricted credit, since it consists of a reserve of money made available to the borrower, which he can use as he wishes and when he wishes in one or more installments.
Personal credit can group different names under its name. It is an unrestricted credit but can sometimes be called marriage credit or travel credit in order to speak more to the consumer, the fact remains that the amount of money can be used by the borrower as it wish. It can therefore be financing goods, services or cash.
Where to take out consumer credit?
Consumer credit is distributed by banks and most so-called specialized establishments.
These establishments are regulated and controlled by the banking authorities and grouped into professional associations, the FBF and the ASF.
The characteristic of restricted credits and most revolving credits is to be taken out elsewhere than in bank branches, mainly in trade and distribution companies: department stores, specialized signs, mail order companies and car manufacturers.
When you take out a loan in one of these businesses, you rarely have in front of you a credit professional, but rather an employee of the distribution company who has a commercial interest in putting you in contact with the financial institution most easily and quickly in the world.
It should be noted that car manufacturers can also offer consumer credit offers to finance the vehicles purchased. Similarly, large retail groups, through their subsidiaries, can also distribute consumer loans.
You can use this simulator to obtain the best rates for your consumer credit or contact our team of Across Lender experts directly.