Consumer credit is a type of personal loan, with an economic minimum, intended for the acquisition of a good or service and granted by the entrepreneur who provides them. All this under special consumer protection.
Therefore, it is a type of loan for purchases of goods or services. Thus, they differ from other types of loans, especially in that they have a clear purpose, consumption. In addition, their interests are usually higher than in others such as mortgage loans. Therefore, they are financial products that should be used wisely.
Origin of consumer credit
We can think that these are recent, but nothing is further from the truth. According to the International Association of Pledge and Social Credit Institutions, the Montes de Piedad were born in the second half of the 15th century. These were created by the Franciscan monks and with them it was intended to deal with the moneylenders who charged usury interest.
In those days, small loans were given, but at very high interest rates, from 30% to 200%! The Franciscan monks created this system to help the peasants and in the beginning, no interest was charged. It was Leo X who legitimized them in 1515. On the other hand, in the Angol-Saxon countries there were the Frugality Banks, which were dedicated, above all, to philanthropy.
In the 20th century, with the advent of the automobile, this type of consumer credit became fashionable and began an unprecedented growth. Keep in mind that they tend to finance purchases of high-value consumer goods, for example, household appliances or furniture. With the birth of a middle class with greater purchasing power, installment purchases also increased.
Characteristics of consumer credit
Some of the characteristics that differentiate this type of financial product from others are those shown below:
- As we have mentioned, its purpose is consumer goods. A car, furniture or a laptop, among others.
- It is normally granted by the employer himself, unlike loans, which are granted by the financial institution. Of course, this acts only as an intermediary. In fact, the feasibility studies are carried out by the entity itself.
- The regulations that regulate it seeks to protect the consumer against possible abuses. It usually establishes the obligation to report in detail about them. For example, including the Annual Equivalent Rate (APR) and not just the nominal interest (TIN).
- Its amount is not very high, although a minimum is usually requested to grant them.
- Its processing is faster than in others such as mortgages. Of course, the interests are higher than in other personal loans.
- The client responds for the payment with his present and future assets. In this case there is no real guarantee, like a property.
Aspects to consider
Some recommendations should be taken into account before requesting them. Although the law protects the consumer, on occasions there have been clauses that have caused the debtor the occasional headache. Central banks usually have reports on recommendations to request this type of loan (Bank of Spain, Banxico, Central Bank of the Republic of Argentina...). By following them, you will protect yourself against possible abuse. They usually agree on the following points:
- Pay particular attention to advertising these products. Normally the rules that regulate them establish the minimum requirements for them. Once again, we must remember that you have to know the APR, the lower it is, the lower the financial cost.
- Always ask for a draft in writing and if it can be binding, the better. They say that words are blown away by the wind and everything should be clear before signing.
- All doubts must be resolved and the entity must help you. Always ask and do not leave anything unclear.