Understanding Consumer Loans
A consumer loan is when you get a loan to buy a consumable item or an item that will be consumed or used up
. However, along the way consumer loans came to mean a form of personal financing that can be structured in different ways.
Consumer loans are not just for consumable products but in fact may be things like a boat or motor home. Although these will be used up at some point in time, they are not always financed by a conventional loan such as a mortgage. Consumer automobile financing is technically a consumer loan although in the United States automobile financers whether the automobile company through its financing arm or a large bank that has arrangements to finance the company's automobiles may argue that car loans are not consumer loans and therefore fall under different guidelines.
When you hear about consumer loans you also hear about consumer finance companies. Generally a consumer will go into a store when they desire a new big screen television set but they do not have the money to write a check for it nor do they have the credit available on their credit card. And generally the credit card interest rate may be quite a lot higher than a consumer loan by a consumer finance company. This is when a consumer loan is viable. The lender may be a consumer finance company who will gladly make this loan available to the consumer so the retailer can sell the big screen television.
When a consumer loan company makes this type of loan to a consumer it generally is because the consumer does not qualify for a personal loan from a bank. Banks generally make it difficult to get personal loans unless the client has a large bank account balance or they are an excellent customer of the bank because of their business relationship or trust department relationship.
So the consumer loan company makes this loan available for a relatively short period of time compared to a mortgage which may be twenty to thirty years. Generally a loan to a consumer will be for a year to two years. It will be tied to the length of time the item like the big screen television will last. And in today's environment the big screen television will become technologically obsolete long before the big screen television wears out.
This loan for the big screen television will generally carry a high interest rate compared to a mortgage loan. On occasion the loan may make almost as much interest as the amount of the loan itself. Often this type of loan is made to a borrower who does not have the best credit rating.
When you apply for a loan to buy something like a big screen television you should read all of the loan documents that you sign even if they are in small print. Because technically if you are even one day late on your loan payment the loan is actually in default and the item may be repossessed.
Understanding Consumer Loans
By: John Miler
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