Consumer credit is a personal debt that is procured to purchase goods and services. An example of consumer credit is a credit card. Any personal loan can be termed consumer credit. Although, the term is mainly used to define unsecured debt that is secured to purchase everyday goods and services. However, acquiring a house can not be termed as consumer credit as it is a long-term investment, and usually purchased with a secured mortgage loan. Consumer credit can also be called consumer debt.
Consumer credit is extended by banks to help customers buy goods instantly and pay off the cost over time with interest. There are two types of consumer credit: installment credit and revolving credit.
This credit is used for a specific purpose and issued for a stipulated time period at a designated amount. Under this category, it is required that payments are made monthly in equal installments. This type of credit can be used for major purchases such as cars, appliances, and furniture. Installment credit features incentives with low interest rates. In case the consumer defaults, the items purchased can be used as collateral.
This type of credit can be used for any type of purchase. Credit cards can be classified as revolving credit. The credit is said to be revolving which means that the line of credit is kept open and can be used up to the maximum limit time and again, so long as the borrower keeps paying the minimum monthly payment on time. This credit comes with a high interest rate as it is not secured by collateral.
Benefits Of Consumer Credit
With consumer credits, you can get an advance on income to purchase goods and services. It can come in handy in emergency cases such as a car breakdown – this can be a lifesaver. This type of credit which are safe to carry which promotes a cashless society in which people can consistently depend on credit for large and small purchases. Consumer credit provides a highly lucrative business for banks and financial institutions, department stores, and other businesses.
Downsides Of Consumer Credits
Consumer credits comes with a high cost for defaulters as they are faced with accrued additional interest charges from month to month. As of April 2019, the average annual percentage rate on new offers of credit cards was 19.24%. Department store credit cards had an average of 25.74%. Failure to pay a single payment can significantly increase the cardholder’s interest rate.
Consumer credits depict the percentage of an individual or family’s spending which goes products and services that depreciate swiftly. Examples of such credits are food, cosmetics or dry cleaning services. The usage of the consumer from month to month is carefully evaluated by economists as it is deemed an indicator of economic growth or contraction. The economy is being boosted when consumers are willing to borrow and certain they can repay their debts on time. However, in a situation where consumers cut back on their expenses, it creates an indication that will cause the economy to contract.
Consumer credits help consumers meet their urgent needs seamlessly. If you wish to know more about how you can access consumer credit, you can check out this link: kulutusluotto