The increased demand for consumer lending programs is due to the ease of registration. Loans of this type are the main direction of work for banking institutions. However, you can also borrow funds for personal or family needs in microfinance institutions (MFIs), pawnshops, and credit cooperatives.
Classification of consumer loans:
1. By target nature:
Unsecured loan. The most common type of loan. It is issued directly at the bank, although applications are often accepted on websites. Funds are provided in cash or transferred to the card. Non-purpose loans are characterized by higher interest rates.
Purpose loan. Used to pay for goods or services. Often issued directly in the store when the borrower has decided on the purchase. Purpose loans include POS loans, Mortgages, and loans for the purchase of vehicles, travel expenses, medical treatment, or education.
2. For security:
Unsecured loan. It is issued without additional guarantees in the form of a guarantee or pledge.
Secured loan. It is issued after attracting a guarantor or providing valuable property as a Pledge. Interest rates on secured loans are often lower.
3. By maturity:
Express from 1 day to 30 days. A relatively new type of lending. It is issued online and is an updated version of a microloan. Express loans are characterized by a high-interest rate and a small loan amount. As a rule, MFIs offer to use this form of borrowing.
Short-term up to one year. Differs in high cost and simple design. Security is not required. When applying, a certificate of income is usually not used.
Medium-term from 12 to 60 months. A classic type of consumer lending with an optimal balance of requirements and financing conditions. Funds are issued for any purpose, but to receive the maximum amount, the borrower needs to confirm solvency. For loyal customers, banks increase the maximum loan term to 7 years.
Long-term from 5 to 30 years. A targeted and secured loan for a large amount at a low-interest rate. Difficult to obtain due to the extensive list of requirements for the client. issued by banks. Mortgages and car loans are among the most popular examples.
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Features of consumer lending depend on the type of security chosen. For example, the guarantor of the transaction must pass the same checks as the borrower. In turn, under the secured lending program, the bank can force the client to insure the property.
Risks of a secured loan:
A relative or friend can act as a guarantor of the transaction. If there are problems with the repayment of the debt, the guarantor is forced to assume obligations to return the money;
Apartments, houses, and vehicles are used as collateral. The encumbrance will not allow financial transactions with the subject of the pledge, but movable or immovable property can continue to be used. In the case of systematic overdue payments, the creditor has the right to initiate compulsory collection. This Procedure involves the confiscation and sale of collateral.
Thus, when choosing the option with secured lending, it is necessary to take into account possible risks. To avoid force majeure situations, you should prepare for the timely repayment of debt.
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