WHAT CONSUMER LENDING IS AND ITS BENEFITS

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finance

Consumer lending is a loan that provides financing for an individual, family, or household to meet various purposes. These loans have various sources like financial institutions or lending platforms. Also, they are mostly unsecured; in other words, they do not require any collateral – with a few exceptions like auto loans.

There are several types of consumer lending, also known as consumer loans.

PERSONAL LOANS

With this type of loan, factors like consumer’s credit scores are used to determine the eligibility and the applicable interest rate of the consumer. The consumer is then required to sign on a promise to pay the loan back.If you wish to know more about consumer lending and how to access any type of loan, please check Privatlan

HOME EQUITY LINE OF CREDIT

A Home Equity Line of Credit, also known as HELOC, uses your home equity to secure a loan that is made available for a specific period of time. The borrower determines the amount of line credit that is needed, and the timeframe of use. Many HELOCs feature draw periods that provide an avenue for borrowers to draw down on credit. This could be either in increments or by making full or part-payments, after which it can be borrowed again. All outstanding balances are amortized after the draw periods and repaid on a 10 to a 15-year term. The interest on a Home Equity Line of Credit can be in some cases tax-deductible. You need to consult a tax advisor on this aspect.

HOME EQUITY LOANS

A Home Equity Loan is different from a Home Equity Line of Credit, in that the loan is disbursed to the consumer in a lump sum and comes with a fixed interest rate. Similarly to the HELOC, the equity on the borrower’s home is used as collateral to secure the loan. Repayments are made with the principal fully amortized. Interest payments are spread across a 5 to 30 year period.

AUTO LOANS

Consumer loans include loans for either a new or used car. These types of loans are secured, which means that a collateral is needed to procure the loan. In this case, a lien is being placed on the vehicle. In a situation where the vehicle owner is not able to repay the loan, the car is repossessed by the lender to offset the loan. An individual’s credit score determines the interest rate on the loan, and the loan term can vary from 12 to 72 months.

BENEFITS OF CONSUMER LENDING

  • With these types of loans, consumers can purchase goods and services without needing to pay for them immediately.
  • It becomes compulsory for consumers to save money concurrently, thereby helping them utilize their income the right way.
  • Consumer lending helps individuals purchase durable and long-lasting goods conveniently.
  • They are great at meeting unexpected expenses such as accidents, medical emergencies, car breakdowns, and unfortunate deaths.
  • You can be able to purchase goods that above your means to improve your standard of living. Also, the repayment plans are flexible and less stressful.
  • There are various substantial rewards that come with consumer lending. These rewards help you maintain good credit scores.