A new kitchen, a new bedroom or a new car: Although all these things are necessary, they can sometimes cost a lot of money. Money that many consumers simply cannot save, which is why they finance these things and much more through a consumer loan, also known as a consumer loan.
Where do you get a consumer loan
There are different ways for consumers to get such a loan. The option with the least effort is the conclusion of financing directly from the dealer. The latter does not finance the amount himself, but usually works with a bank, which then makes the loan amount available. The consumer only has to prove his liquidity; further activities on his part are not required.
This is different with a house bank loan. Here the consumer has to ask for a loan in advance of his financing and can only make his purchase when the loan is approved. This can cost valuable time, so that quite a few consumers take out loan financing directly from the dealer. And this in the knowledge that such a loan is often more expensive than with the house bank, but certainly more expensive than with direct providers on the Internet.
How does the application for consumer credit work?
Whatever the decision of the consumer for their consumer credit looks like, the procedure from the application to the payment of money is essentially always the same. Because the banks do not give their money without appropriate security. And this credit protection for consumer loans looks so that the borrowers are liable for the loan with their available net income.
It is not so important for securing the loan whether there are one or two borrowers, as is the case with spouses. This is only a question of liability in the event that the loan installments are not paid or are not paid regularly.
The bank can then use an enforceable title, for example, to seize the wages to get the outstanding money. At the same time, however, the loan is also canceled, so that the borrower is also immediately required to pay a cash amount.
What role does income play?
Much more important in connection with the granting of a consumer loan is the amount of the net income to be achieved on the part of the borrowers. All income that is available every month is taken into account here. In addition to income from work, for example, income from renting and leasing or capital income.
The positions that reduce income are counted against this. This primarily includes existing loan liabilities, for which monthly installments are also payable. Maintenance obligations are also deducted from income because they reduce income accordingly.
Lending to consumers and consumption
If the income is sufficient after deducting all liabilities, there is usually nothing to prevent lending. With a consumer loan, however, care should be taken to find a healthy middle ground between the term and the rate. Because it makes little sense, for example, to pay off the new bedroom longer than it might even be in the bedroom.
A consumer loan is a bank loan used to finance consumer goods or services that consumers use. There are a multitude of options for consumers to finance an acquisition if the amount required in the form of the saved funds is not sufficient. One of them is consumer credit.
With other loans there is always a clear indication. An investment loan is about cash flow. In the case of real estate financing, the focus is on increasing the value and saving on the usage fee. With a consumer loan, on the other hand, there is no clear indication from which the repayability of the loan can be hung. It is often repaid from the borrower’s future income after the loan agreement has been concluded.
The consumer goods financed with the help of a consumer loan are often used for private use or consumption. A distinction must be made here between consumer goods (fuels, luxury foods, food) and consumer goods (motor vehicles, household items, jewelry, etc.). If consumer goods are purchased with a consumer loan, this can take the form of an initial purchase or a replacement purchase.
For banks, the maturities of consumer loans are often based on the useful life of the financed assets. As a rule, they do not exceed 5 years. The loans are often granted by the banks without earmarking because it is not useful for the bank to know what the borrower is using the money for.
The credit terms
In the case of a consumer loan, the credit institutions are generally required to use equity between 10% and 25% of the purchase price under their credit conditions. In the case of consumer loans, full financing by the credit institutions is only possible in exceptional cases. The borrower’s equity capital then significantly reduces the credit risk for the credit institutions. The borrower, on the other hand, also limits his financial risk somewhat because he does not have to pay the full amount of the objects to be financed.
Consumer credit is secured by the credit institutions, particularly with longer terms. The purchased consumer goods are used as collateral for the loan. This is done in the form of transfer by way of security (mainly for household items) or by way of security of vehicles or primary schools. The credit institution also usually requires access to the payroll.
The necessary loan documents are usually the purchase contracts for the purchased items as well as proof of income by the borrower. Such a consumer loan is often granted very strictly for a specific purpose. The repayment is usually made in the form of an installment loan or in the form of a maturity. In rare cases, an annuity loan is also an option.
The loan amount
The loan amount varies depending on the bank. It usually starts at 500 USD and goes up to sums of 50,000 USD, which have a term of 12 to 84 months. There are also exceptions where amounts up to $ 75,000 and a term of up to 120 months are possible. In this context, it is also important for the lender that the borrower is able to easily handle the monthly installments.
A household bill to be carried out by the borrower is often very useful. This is the best way to determine the monthly repayment rate or option.