Consumer Credits: Types and Characteristics

Consumer credits are loans granted to individuals to finance various personal needs, such as purchasing goods, financing services, or undertaking projects. Unlike mortgage loans, which are specifically intended for the acquisition of real estate, consumer credits cover a wide range of needs. This article presents the main types of consumer credits and their characteristics.

Personal Loan

Personal loan is one of the most common forms of consumer credit. It allows financing personal projects without having to justify the use of funds to the lender. The borrowed amount can be used freely, whether for renovations, holidays, or purchasing goods. The characteristics of a personal loan include:

• Amount: Generally ranging from €1,000 to €75,000, depending on the borrower's repayment capacity.
• Duration: The repayment period varies from 12 to 84 months, depending on the borrowed amount and the lender's conditions.
• Interest Rate: Fixed or variable, the rate is often lower than that of a revolving credit but higher than that of a mortgage loan.
• Repayment Terms: The installments are fixed and defined in advance, allowing for simplified budget management.

Revolving Credit

Revolving credit, formerly known as revolving credit, is a line of credit made available to the borrower, who can use it partially or in full, according to their needs. The amount used is then repaid in installments, and the repaid sum becomes available again for new purchases. The characteristics of revolving credit include:

• Amount: Generally ranging from €500 to €6,000, depending on the credit offers from financial institutions.
• Duration: The credit is renewed annually, provided that the borrower can meet their repayment commitments.
• Interest Rate: The rate is often high, reaching up to 20%, but applies only to the amount used.
• Flexibility: The borrower can choose to repay more than the minimum installment, accelerating the replenishment of the credit line.

Assigned Credit

Assigned credit is a loan whose use is strictly linked to the purchase of a specific good or service, such as a vehicle, furniture, or renovations. Unlike a personal loan, the borrowed amount can only be used for the purpose defined in the credit agreement. The characteristics of assigned credit include:

• Amount: The credit amount is directly linked to the price of the financed good or service.
• Duration: The repayment period is generally adapted to the lifespan of the financed good.
• Interest Rate: The rate is often attractive, due to the secured nature of the loan for the lender.
• Guarantee: In case of non-delivery or failure of the financed good or service, the credit can be canceled, thus protecting the borrower.

Student Loan

A student loan is a consumer credit specifically designed to finance studies and expenses related to student life. This type of loan is often offered on advantageous terms for young people, with a repayment deferral period until the end of studies. The characteristics of a student loan include:

• Amount: Generally ranging from €1,000 to €50,000, depending on the student's needs and the lender's conditions.
• Duration: The repayment period is often spread over several years, with total or partial deferral during studies.
• Interest Rate: The rates are often favorable and can be negotiated based on the student's situation.
• Guarantee: The loan may require parental guarantee or bank guarantee, depending on the lender's conditions.

Real-life Examples

Let's assume a borrower takes out a €10,000 personal loan to finance renovations in their home. With a fixed interest rate of 5% over 60 months, they will repay approximately €188 per month. Similarly, a student taking out a €20,000 loan with a 5-year repayment deferral could start repaying after obtaining their degree, with installments tailored to their professional situation.

Legal Framework for Consumer Credits

Consumer credits are regulated by the Consumer Code, particularly articles L312-1 to L312-93. These articles define the rights and obligations of borrowers and lenders, repayment conditions, and mandatory information to provide before credit subscription.

Conclusion

Consumer credits offer a variety of financing solutions to meet individuals' needs, whether for personal projects, purchasing goods, or managing daily expenses. By understanding the characteristics of each type of credit, borrowers can choose the most suitable solution for their financial situation. It is always recommended to compare offers and carefully read the conditions before subscribing to a loan, to ensure it meets needs while remaining within repayment capabilities.