Consumer credit: How to use it wisely and without risks?

A consumer loan is a loan made by a financial institution, either directly or through a merchant, to an individual for non-commercial purposes. The loan amount can range from 200 euro to 75,000 euro and is designed to finance the purchase of consumer goods such as furniture, computers, cars and others, excluding real estate.

There are several types of consumer credit that operate on two principles. The first principle is that the loan can be used to purchase a specific product at the time of contracting. It can be a car, home appliances, travelling, etc. In this case, the credit received must be used exclusively to pay for the goods in question. The second principle assumes unlimited use of the loan. In this case, you can dispose of the amount taken at your discretion, whether it is the purchase of consumer goods or any other service. Personal loans and revolving loans fall into this category.

Each month, you pay back a portion of the amount borrowed plus interest, which corresponds to the cost of the loan to the borrower (administrative costs, insurance, guarantees, etc.).
The consumer loan rate or APR (Annual Percentage Rate) varies depending on the financial institution you borrow from. However, it cannot exceed the maximum rate or usurious rate. The cost of a consumer loan depends on the interest rate and repayment period.

What protection is there for the borrower?

Consumer credit is governed by the Consumer Code, which sets out a number of rules regarding the content and conclusion of the contract. The most important protections are aimed at ensuring transparency and security for the borrower. Firstly, the lender is obliged to provide the prospective borrower with a pre-contract information sheet describing all the features of the contract so that the borrower has the opportunity to make an informed decision. In addition, the lender is obliged to keep the contract offer, setting out all the terms and conditions of the loan, for 15 clear days.

The lender is also obliged to verify the borrower's repayment capacity, in particular by consulting the national personal loan repayment file (FICP). This is to avoid a situation where the borrower is unable to cope with the financial burden. An important safeguard is the possibility for the borrower to withdraw from the loan within 14 calendar days of accepting the offer of a loan agreement. The withdrawal form is attached to the loan agreement, making the process as convenient as possible for the borrower. In addition, the borrower has the right to repay all or part of the outstanding loan ahead of schedule, allowing the borrower flexibility in managing their financial obligations. These rules and protections make the consumer loan process clearer and safer for all involved.

In addition to traditional consumer loans such as targeted loans, personal loans and revolving loans, there are also more specific types of consumer loans that give access to credit to certain categories of people (students, the elderly, the financially vulnerable). In the following sections we will look at these forms in more detail.

Targeted loan

A purpose loan is used exclusively to finance a specific purchase specified in the loan offer. This can be a variety of goods or services such as a car, building work, travelling and more. The purpose loan is administered by a bank or lending institution, and these loans are often offered directly at the point of sale, making it as convenient as possible for customers.

The amount of a targeted loan can range from 200 to 75,000 euro. An important feature of a special purpose loan is the fixed rate. This means that the amount of monthly instalments, the repayment period and the interest rate will be specified in advance in your offer contract. The loan term must be for more than three months and repayment starts when the goods or services are delivered, avoiding the need to make payments before you receive what you are paying for. You also have the option to cancel the loan within 14 calendar days of signing the contract. This period can be reduced to three days if you receive the goods or service immediately.

Personal loans

A personal loan can be used for any need, without having to specify a specific purpose. You can apply for this loan from your bank or use the services of a specialised lending institution. The amount of a personal loan varies from 200 euro to 75,000 euro, allowing you to cover a wide range of financial needs, from small purchases to significant investments.

The interest rate and repayment terms are set at the lender's discretion, which emphasises the importance of carefully examining offers before signing a contract. The term of the loan should be more than three months, giving you enough time to repay it. The borrower also has 14 calendar days from acceptance of the contract to cancel the loan. It is important to note that the lender is not allowed to disburse funds in the first seven days.

Revolving loan

A revolving loan, also known as a revolving loan, is a form of consumer credit that allows considerable freedom in its use and repayment. This means that once you take out a loan, you no longer need to go to the bank for authorisation to use it. Moreover, you can decide to defer your monthly repayments.

The loan can be provided by a variety of institutions including supermarket chains, post shops, credit institutions specialising in consumer credit and banks. The amount of the revolving loan can range from 200 euro to 75,000 euro, depending on your needs and creditworthiness. If the loan amount exceeds 1,000 euro, the lending institution must offer you an amortising loan.

The interest rate on a revolving loan is variable and depends on changes in interest rates on the financial markets. It is also worth considering that the rate on this loan is usually higher than on a standard consumer loan. The law sets a maximum repayment period of 36 months if the loan amount is 3,000 euro or less and 60 months if the amount exceeds 3,000. The borrower also has the option to cancel the loan within 14 calendar days of accepting the contract.

Personalised microcredit

This loan is for people who have been excluded from the traditional banking system for some reason, and is used to purchase goods or services to improve their financial situation. It can be used for a variety of purposes such as taking vocational training, obtaining a driving licence or paying for low reimbursement medical services.

This loan is issued through a social support network that acts as an intermediary between the borrower and an approved bank. These organisations may include local authorities, employment centres, Community Centres for Social Action (CCAS) or associations with a social vocation. The loan amount can range from 300 euro to 8,000 euro.

The interest rate on the loan is usually between 1.5 and 4%, and importantly, the loan does not include administrative fees. The term of the loan can fluctuate depending on the purpose of the loan, beginning at six months and up to seven years. As with past options, borrowers have 14 calendar days from the date of signing to cancel the loan.

Government-guaranteed student loans

A government-guaranteed student loan is an important financial support for young people under the age of 28 to help them fund their studies. To qualify for this loan, you must be a citizen of one of the European Economic Area (EEA) countries.

The process of applying for this loan is through banks participating in the government programme. The loan must be repaid with interest, but repayments can be deferred until you complete your studies. Banks disburse loans within the budget allocated by the government, which ensures that this programme is available to all eligible candidates. This type of loan allows students to ensure their continuing education despite possible financial difficulties. It is a reliable support tool that contributes not only to the academic but also to the professional development of young people, opening up new opportunities and prospects for them.

Conclusion

Consumer credit is a powerful financial tool that can greatly facilitate the fulfilment of various life tasks and projects. If used correctly, such a loan can become a reliable assistant in achieving your goals. Remember, the key to successful credit management is to carefully analyse terms and conditions and be responsible when planning your finances. Research offers, compare interest rates and repayment terms, and choose the options that best suit your needs and capabilities.