Consumer credit is a payment facility tool. It allows a lender (financial institution) to make a loan to a person called a borrower. The total amount of this credit must be between € 200 and € 75,000. In addition, this credit must provide for a repayment term of more than 3 months.
Nevertheless, this credit does not allow to finance any purchase of the borrower. To qualify as a consumer credit, the credit must not be used to finance transactions related to real estate such as home ownership or financing the construction of a house. Thus, the borrower will not be able to buy a land, a house or an apartment, for example. This credit then makes it possible to finance the purchase of consumer goods (food, furniture, computers, vehicles, etc.). A borrower can benefit from such credit to finance his everyday purchases. It is the same to carry out work if it is about renovations and not work allowing the construction of a property.
Finally, payment terms, bank overdrafts, payment facilities (type 3x without fees) that meet the above definition are also part of this credit category.
Once the consumption credit has been concluded, the borrower will have to repay each month a portion of the amount borrowed, called “capital”, and interest. Interest and other ancillary costs, such as processing fees, represent the cost of credit to the borrower. To obtain the total cost of the credit, it is sufficient to add the price of the insurance to interest and ancillary costs.
The different types of consumer credit
There are two major distinctions in this area: personal loan / revolving credit and the assigned loan / unallocated loan.
For personal loans, this is the most typical type of consumer credit. In this case, the lender (the financial institution) agrees to pay the borrower (the consumer) the agreed sum at one time. Upon the conclusion of the loan, the borrower knows the schedule of repayments. That is to say, the borrower knows both the amount of monthly payments to repay, the repayment term (the number of monthly payments) and the cost of credit (interest + ancillary costs).
Unlike personal loans, revolving credit operates under a different mechanism. This consumption credit works like a “cash reserve”. It is indeed a form of credit that obliges the lender to make available to the borrower a sum of money that it can reuse as and when repayments to finance non-predefined purchases within the limit of a maximum ceiling and a maximum duration.
As long as the “money reserve” is not used by the borrower, the borrower has nothing to repay. However, as soon as the borrower draws on this “money reserve”, he will have to reconstitute it by paying monthly installments. These monthly payments then make it possible to reconstitute again this reserve and the borrower will be able once again to draw in by committing to pay new monthly payments.
However, for this category of consumer credit, interest rates are higher. This is a counterpart to the flexibility left to the borrower.
The duration of the revolving credit is 1 year but the duration can be renewed every year. However, the lender must consult each year the national file of incidents of reimbursement of loans to individuals (FICP), identifying the information on payment incidents, before proposing to the borrower to renew the credit. In addition, the lender must verify the creditworthiness of the borrower every 3 years.
To prevent monthly payments from accumulating, the law provides for a repayment term of up to 3 years for loans of up to € 3,000. For credits of a higher amount, the maximum repayment term is fixed at 5 years.
If the borrower has previously defined what he intends to buy, then, when he concludes a consumption credit to finance this purchase, we will speak of loan allocated to the purchase of this property. The contract must then mention the good or service that the credit is used to finance in order for the contract to be legally valid. For example, when the borrower wants to buy a car and he needs a loan to finance this purchase, the seller will offer him this type of credit to finance the purchase of this car.
For this type of consumer credit (loan allocated), there are personal loans that have been concluded for the purpose of buying a predefined property.
The example set out above meets both the definition of consumer credit as a personal loan and an assigned loan.
Where to get a consumer credit?
It is possible to obtain a consumption credit from a bank or a credit institution (specialized in consumer credit or not). For some credits, type loan affected, it is possible to subscribe directly in retail chains, in department stores …
The loyalty cards of the stores, which make it possible to benefit from the promotional offers, integrate most often a function of consumer credit by allowing facilities of payment, type 3x without expenses and others.
Consumer credit insurance aims to guarantee the repayment of this credit by covering the risks related to the death of the borrower, disability, incapacity for work, loss of employment. It all depends on the insurance the borrower will take out. In case of serious health problems, it is possible to benefit from the AERAS (Insuring and Borrowing with an Enhanced Health Risk) convention.
Insurance is generally offered by the institution offering the credit. However, it is not mandatory, although the credit granting institution strongly encourages the borrower to subscribe. Nevertheless, if the borrower decides to subscribe, he is free to choose the institution of his choice to insure himself. There is therefore no obligation to take out insurance, or to subscribe to the one presented by the financial institution granting the credit. top