Secured Credit: Financing Specific Purchases

Secured credit is a form of consumer credit that is specifically tied to a particular purchase. Unlike a personal loan, which can be used for any purpose, secured credit is directly linked to the acquisition of a specific good or service, such as buying a car, home renovations, or purchasing furniture. This article explores the characteristics of secured credit, its advantages, and points to consider before subscribing to it.

Characteristics of Secured Credit

Secured credit is a loan whose approval and use are strictly linked to a specific purchase. The main characteristics of secured credit include:

• Amount: The amount of credit is generally determined based on the price of the item or service to be financed. It can range from a few hundred to several tens of thousands of euros.
• Duration: The repayment period is often tailored to the lifespan of the financed item. For example, for a car, the duration could be 12 to 60 months.
• Interest Rate: The interest rate is typically fixed, providing visibility on the total cost of credit from the contract's signing.
• Collateral: The purchased item serves as collateral. This means that if the item is not delivered or the service is not rendered, the credit can be canceled, protecting the borrower.
• Repayment: The installments are fixed, and repayment begins once the item is delivered or the service is rendered. Secured credit is therefore secure for the borrower.

Advantages of Secured Credit

Secured credit offers several specific advantages compared to other types of consumer credit:

• Security: The main advantage of secured credit is that it is directly tied to the purchase of a good or service. If the item is not delivered or the service is not provided, the borrower is not obligated to repay the credit. This provides additional protection compared to other types of credit.
• Visibility: With a fixed interest rate and predetermined installments, the borrower knows exactly how much they will have to repay each month. This allows for simpler and more predictable budget management.
• Ease of Approval: Secured credits are often easier to obtain than personal loans because they are less risky for the lender. The purchased item serves as collateral, reducing the risk of non-payment.
• Adaptability: Secured credit can be used to finance a wide variety of purchases, from vehicles to home renovations, appliances, and travel.

Points to Consider Before Subscribing to Secured Credit

Before subscribing to secured credit, it is important to consider certain elements to ensure it meets your needs:

• Comparison of Offers: It is essential to compare the secured credit offers available on the market, taking into account interest rates, repayment conditions, and potential fees.
• Repayment Capacity: As with any credit, it is crucial to assess your repayment capacity before subscribing to secured credit. Make sure that the installments are compatible with your budget.
• Repayment Conditions: Check the conditions for early repayment. Some contracts allow for early repayment without fees, which can be advantageous if you have the ability to repay more quickly.
• Use of Credit: Ensure that the item or service you wish to finance is eligible for secured credit. Some specific purchases may not be covered by this type of credit.

Real-Life Examples

Let's assume a borrower wants to buy a new car for €20,000. By taking out secured credit at a fixed interest rate of 4% over 48 months, they repay approximately €452 per month, for a total cost of €21,696. If the car is not delivered, the credit contract is canceled, and the borrower has nothing to repay.

Laws Regulating Secured Credit

Secured credit is regulated by the Consumer Code, specifically articles L312-1 to L312-93. These articles specify the obligations of lenders and borrowers, repayment conditions, and withdrawal rights. The borrower has a 14-day withdrawal period from the contract's signing.

Conclusion

Secured credit is a secure and transparent financing solution for specific purchases. By providing additional protection in case of non-delivery or non-performance, it allows the borrower to finance their projects with peace of mind. However, as with any credit, it is important to assess your needs, compare offers, and ensure that the credit is suitable for your repayment capacity.