Consumer credit

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Consumer credit is a type of personal loan with an economic minimum, intended for the purchase of a good or service and granted by the entrepreneur who provides it . All this under special consumer protection .

Therefore, it is a kind of loan for the purchase of goods or services. Thus, the main way they differ from other types of credit is that they have a clear purpose, consumption. In addition, their interest rates are usually higher than others such as mortgage loans. Therefore, these are financial products that should be used wisely.

Origin of the consumer credit

We may think these are new, but nothing is further from the truth. According to the International Association of Pawn and Social Credit Institutions, the Montes de Piedad were established in the second half of the 15. Born at the beginning of the twentieth century. These were created by the Franciscan friars and they should be used to deal with moneylenders who charged usurious interest rates.

At that time, small loans were granted, but at very high interest rates, from 30% to 200%! The Franciscan friars created this system to help the peasants, and in the beginning no interest was charged. Leo X. legitimized them 1515. On the other hand, in the Anglo-Saxon countries there were the Frugality Banks, which were mainly dedicated to philanthropy.

In the 20. In the nineteenth century, with the advent of the automobile, this type of consumer credit came into vogue and began an unprecedented growth. Remember that they usually finance the purchase of high-end 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 distinguish this type of financial product from others are the following:

  • As we have already mentioned, they are consumer goods. Among other things, a car, furniture or a laptop.
  • It is usually granted by the employer itself, as opposed to loans granted by the financial institution. This, of course, only acts as an intermediary. In fact, the feasibility studies are carried out by the company itself.
  • The regulations they govern are designed to protect consumers from possible abuses. It usually establishes the obligation to report in detail about it. For example, including the annual equivalent rate (APR) and not only the nominal interest rate (TIN).
  • Their amount is not very high, although a minimum is usually required for them to be granted.
  • Its processing is faster than in others like mortgages. Of course, the interest rates are higher than other personal loans.
  • The customer responds to the payment with his present and future assets. In this case, there is no real collateral, such as real estate.

Aspects to consider

Some recommendations should be considered before requesting them. Although the law protects the consumer, there were sometimes clauses that occasionally caused headaches for the debtor. Central banks usually have reports of recommendations to apply for this type of loan (Bank of Spain, Banxico, Central Bank of the Republic of Argentina …). By following them, you protect yourself from possible abuse. They usually agree on the following points:

  • Pay particular attention to the advertising of these products. Usually the rules that govern them set the minimum requirements for them. Once again we must remember that you need to know the APR, the lower it is, the lower the financial cost will be.
  • Always request a draft in writing and if it can be binding, all the better. They say that words are carried away by the wind and everything should be clear before signing.
  • All doubts must be cleared and the company must help you. Always ask questions and do not leave anything unclear.