A consumer loan is a loan that is granted to households. This is used to finance products that are used for the consumption of goods. The consumer loan can be offered, for example, as an installment loan, but also as an overdraft facility. It is also known under the name “consumer credit” because it is a credit for consumers. There are different types of consumer loans. The term stands for personal loans as well as for personal loans or for a general purpose loan. The consumer loan assumes that the amount of the loan will not exceed 25,000. In addition, the term is usually not more than 72 months. It is possible for the borrower to take out life insurance in addition to consumer credit.This is also known as residual debt insurance. It serves as protection if the borrower is no longer able to pay the consumer loan due to inability to work or death. This is also intended to protect the relatives of the borrower.
Credit protection is also important for consumer credit
There are various types of collateral loan that can be used. For example, attachable parts of wages or salaries can be used. This is also the normal case when granting a consumer loan. Another option is the guarantee. In the case of a guarantee, another person assumes liability and agrees to pay the loan installments if the borrower is no longer able to do so. If the borrower is married, the spouse is automatically liable as a guarantor. It is different if the consumer loan is issued as a credit line. These are unsecured loans, which have also become known as blank loans.
Credit rating and interest on consumer credit
In order for the bank to be able to assess the creditworthiness of a customer, the customer must prove it and also agree to a credit check. Proof can be provided by submitting proof of income. The bank also obtains information from credit bureau that can be used to classify a person’s creditworthiness. It is important that, based on the proof of income, it is also checked whether the amount of the chosen loan rate is even acceptable for the borrower in this form. The installments have to leave him enough money to cover existing costs.
The consumer loan comes with interest, which is determined when the contract is signed. The amount of interest can vary. However, it will be based on the pricing regulation for the loan offers that are available. However, it is important to differentiate. In this way, the overdraft facility in terms of interest clearly stands out from a classic consumer loan. This is mainly due to the fact that not the effective annual interest rate based on the total cost of the loan, but the nominal interest rate for one year is chosen for the overdraft facility. The interest period must be specified here so that it can be used as a guide. This is also one of the reasons why the overdraft facility has a particularly high interest rate.