El Consumer credit It is a loan modality of great incidence within the world market. Let's briefly examine its history, characteristics and risks together.
Consumer credit: flexible loan possibility
El Consumer credit It has been a very popular loan method throughout history. In the modern times that we live in, there has been an even greater springtime in moments where the greatest flexibility is required of our legal and financial commitments, given the extreme dynamism of our means of work and the constant precariousness of our income in the last couple of years. This type of credit is largely adapted to a volatile environment in which a specific profit is sought without great ambitions.
What exactly is a Consumer credit?
This type of credit can be defined as a personal and limited loan with the objective of obtaining a specific good or a certain service. At this point you can already notice an important difference with respect to other types of credit, with much broader or undefined objectives: the consumer loan is based on the acquisition of an element.
A car, a desktop or laptop computer and an appliance can fall within this category of purchasable objects through a consumer credit.
Although we mention modern objects in our exhibition, the Consumer credit he is one of the oldest economic figures in European history. Its use dates back to the mid-fifteenth century, when the Franciscan religious order decided to deal with the secular usury of very high interests with its own system of credits and pawns.
The name that ended up being given to this system due to its devout origins was Monte de Piedad, a name that is still used in a large part of the Hispanic territories. It was in Spain, in fact, where the figure had the greatest impact, after its first appearance in Italian towns.
Peasants, workers and many classes of workers from the humblest class benefited from this so-called Monte de Piedad, legitimized by Pope Leo X the following century. The basic features of the model were already present here: small loans for small targets within the working class.
This constitutes one more argument for considering the Middle Ages as a bustling scene of early modernity rather than as a long episode of obscurantism, as we have become accustomed to seeing it. Universities, nations and basic economic structures come from fully medieval foundations.
When in the XNUMXth century the appearance of the middle class with greater consumption capacity coincided with the entry of the automobile into the market, this loan became even more common, not only with its installment payment feature, but also adding an element that would be prevailing in future times: the granting of credit directly by the company that provides the product or service.
Now, this format has not ceased to mutate in certain factors, adding facets of attractiveness but also risk. Let us examine some of these to complete our exposition.
If you have a special interest in the types of credit that you want to expand with more knowledge, it may be useful for you to also visit this other article on our website dedicated to explaining what the refactionary credit. Follow the link!
Characteristics and risks of consumer credit
We will now review in detail the characteristics of the Consumer credit what concerns us You must be very clear about all these peculiarities to take care of the possible risks that their use may imply.
Features
We can summarize the characteristics as follows:
- In the first place, we have the aforementioned regarding the specific objective of the loan, as opposed to others that are much more indeterminate regarding what the client will seek to achieve when obtaining them. The benefit always consists in relation to indicated products or services, from household appliances such as appliances and furniture to computers and automobiles. The credit is oriented towards obtaining these elements.
- Although there is a minimum amount required to grant the credit, it is usually low cost, in contrast to other types of loans. It is another of the characteristics that generate popular appeal about these loans.
- Also with a lot of difference with respect to the usual bank credit, this consumer loan is usually granted by the company itself that offers the product or service that is sought to be incorporated into our lives. Banking entities usually participate in transactions as intermediaries, offering the system to manage payments. But the feasibility test of the loan is usually done by the company itself, perhaps with some bank assistance, but without exclusive management by it.
- The processing of these credits is quite fast, given the prior establishment of the objective to be achieved and the possibly close relationship between client and company. This differs greatly from mortgages or credits of greater amount and greater indefiniteness, which are usually governed by more requirements and longer terms.
- The interests are usually high compared to other personal loans. This is something of which the Consumer credit it has become detached from its historical monastic tradition. From the modern application of the loan, the interests began to rise as much as in the old usury.
- Taking the above into consideration, there is careful legislation to protect the beneficiary from potential abusive behavior in these loans. In particular, a regulation can be observed that requires the client to be fully informed about the so-called APR (Annual Equivalent Rate) together with the Nominal Interest Rate (TIN). Both will be able to offer the worker precise information to make his decisions regarding the credit and to be able to plan his payments properly if he decides to accept it.
- The above information is important because the payment level of this type of loan involves a large part of the client's assets, both those currently owned and those that may be acquired in the future, without a specific real guarantee. It is then necessary to precisely define what our periodic cancellation responsibilities will be to avoid large debts.
Risks
The risks of this type of credit can be inferred quite well from what was said above in terms of its characteristics. But it can be neatly summed up as follows:
- Oral agreements without settlement in binding documentation. This can be a real ordeal in the event that it is necessary to combat some error in receiving payments or the allocation of excessive interest. Checking what exactly the deal was when we only have air is really highly inadvisable. Make sure you have everything on paper, signed and binding in nature, to avoid confusion or tampering.
- Not fully knowing the payment conditions regarding the accumulation of interest. As has been said before, it is crucial to have the numbers of the annual rates and nominal interest rates clearly in hand, to properly calculate how much we have to pay and on what dates. It is necessary to be prudent in the evaluation of the amounts, to avoid that a credit associated with a simple product ends up being a crossroads of years due to a bad calculation and a lot of lack of information.
- Ask as many questions as possible and resolve any doubts that pop into your head regarding all clauses, no matter how small they may seem, before things get too twisted in the long run.
- Not checking that there is a right of withdrawal for the customer. A credit proposal can be very attractive to us, but it is absolutely essential that we have a clear exit door in case the matter begins to look bad, due to the current state of the credit company or due to personal circumstances that will prevent us from assuming the payments in the future. agreed cycle.
- The terms to rescind the contract that authorizes the credit are usually 14 calendar days counting from the moment the credit has been formalized and then 30 days are usually granted for the return of the money received, possibly up to the moment with its interests.
- Not be aware of the penalties established in the agreed contract. Starting to execute payments thinking that we will be forgiven for a delay of a few days without major consequences when the agreement did establish sanctions, can be quite destructive, to say the least. Make sure you know the punishment before playing with amounts and dates.
Conclusion
Consumer credit can be a very useful resource in many scenarios, due to its ease of processing and the simple objective of its payments. But it can also become a debt with many tentacles if we allow ourselves to be entangled by interests and penalties that have not been previously fully considered.
In addition, at the state level, this style of credit can also carry a risk: the danger that the facilities granted to each client imply a general delinquency, creating a bubble that could finally burst into a financial crisis of considerable size.
It is then, as in many other areas of the world economy, a matter of general responsibility. On the one hand, the users, who must be thoroughly informed about the responsibilities they are really willing to assume.
On the side of the companies, which must deploy all the clauses involved, facilitate credit to the client without malice up the sleeve and keeping an eye on every delinquency that could unbalance the system. And on the third hand, of the State institutions, which must sound the alarms when the business and popular enthusiasm for credit is getting out of hand in a way that is harmful to the stability of national finances.
The following video explains in a very brief and simple way what this type of consumer loan consists of. So far our article on the characteristics, advantages and risks of Consumer credit. See you soon and good luck in your paperwork, purchases and savings.