The different forms of credit: Available options

Whether it's to finance a personal project, purchase real estate, or deal with unexpected expenses, credit is an essential financial tool for many people. There are several forms of credit, each tailored to specific needs. This article explores the main credit options available, their characteristics, and the advantages and disadvantages of each solution.

Personal loan

The personal loan is one of the most common forms of consumer credit. It allows borrowing a sum of money to finance various projects, without having to justify the use of the funds. The main features of the personal loan include:

• Amount: Generally ranging from €1,000 to €75,000, depending on the borrower's needs and repayment capacity.
• Duration: The repayment period varies from 12 to 84 months, with fixed monthly installments defined from the start.
• Interest rate: The rate is usually fixed, allowing for simplified budget management.
• Flexible use: The borrower can use the funds as they see fit, whether for renovations, vacations, or equipment purchases.

Revolving credit

Revolving credit, formerly known as revolving credit, is a reserve of money made available to the borrower, who can use it partially or in full according to their needs. The main features include:

• Amount: The amount of money available is set at the time of subscription and can be reused as repayments are made.
• Duration: The credit is renewed each year, subject to the borrower's ability to meet their repayment commitments.
• Interest rate: Often higher than for a personal loan, the rate applies only to the amount used.
• Flexibility: The borrower can repay at their own pace, provided they respect a minimum monthly installment specified in the contract.

Mortgage loan

The mortgage loan is a credit intended to finance the purchase or construction of real estate. It is generally taken out for a long term, up to 30 years. The main features include:

• Amount: The amount borrowed depends on the price of the property and the borrower's personal contribution.
• Duration: The repayment period is often long, between 15 and 30 years, with installments adapted to the borrower's income.
• Interest rate: The rate can be fixed or variable, influencing the total cost of the credit.
• Guarantee: The mortgage loan is often accompanied by a guarantee, such as a mortgage or a guarantee.

Secured credit

Secured credit is a loan intended to finance a specific purchase, such as a car, furniture, or renovations. Unlike a personal loan, secured credit is linked to a specific asset or service, making it a more secure option for the borrower. The main features include:

• Amount: The amount borrowed is directly linked to the price of the financed asset or service.
• Duration: The repayment period is adapted to the lifespan of the asset or service.
• Interest rate: The rate can be attractive, due to the secure nature of the loan.
• Guarantee: In case of non-delivery or failure of the financed asset or service, the credit can be canceled.

Bridge loan

The bridge loan is a short-term real estate loan, typically used to finance the purchase of a new property before selling an existing property. It allows for an advance on the future sale of the current property. The main features include:

• Amount: Generally represents between 60% and 80% of the value of the property to be sold.
• Duration: The duration of the bridge loan is short, typically between 12 and 24 months.
• Repayment: The loan is repaid upon the sale of the existing property, allowing for the financing of the new purchase without waiting for the sale.

Real examples

Suppose a borrower takes out a personal loan of €15,000 over 60 months at a fixed rate of 4%. The monthly installments will be around €276, for a total cost of credit of €16,560. Similarly, a secured loan for the purchase of a €20,000 car over 48 months at a rate of 3% will cost approximately €22,080 in total.

Laws regulating different forms of credit

The different forms of credit are regulated by the Consumer Code, especially Articles L312-1 to L312-93. These articles define the obligations of lenders and borrowers, repayment conditions, and mandatory information to be provided before subscribing to credit.

Conclusion

There is a wide variety of credit forms, each tailored to specific needs. Whether you want to finance a personal project, purchase real estate, or simply have a reserve of money to deal with unexpected expenses, it is essential to understand the characteristics of each type of credit. Before taking out credit, it is recommended to compare offers, negotiate terms, and consult a financial advisor to choose the option that best suits your situation.