The popularity of a variety of consumer loans is due to their many advantages, the main of which are the ease of execution and the minimum requirements, usually made to the borrower. However, in deciding to obtain the next loan for consumer needs, it is necessary to understand that this banking product has significant disadvantages. Obviously, the most competent approach can be recognized when the borrower is aware not only of the advantages of obtaining consumer credit, but also understands its disadvantages.

What is consumer credit

Consumer credit is a loan that is provided by banks and specialized financial organizations to individuals for the purpose of purchasing goods or services. The peculiarity of this type of loan lies in the fact that the amount of money received can only be spent on a specific purpose.

The term of such a loan usually does not exceed one yea. In some cases, banks can offer loans on more favorable terms - with an extension of the loan period or increase in the amount of credit. Often, these offers are made to new customers when applying for consumer credit for the first time. Read here about BNPL.

Advantages and disadvantages of consumer credit

Consumer credit is a loan, the funds of which are used to purchase goods and services. Quite often it is purposeful, that is, the client knows in advance what the money will be spent on. With the execution of a bank consumer credit, the borrower can perform the following actions:

- Pay for the child's education;

- To make repairs in an apartment or private house;

- To buy a tourist trip;

- buy any consumer goods, etc.

The main advantages of loans of this type are:

- Quick procedure for obtaining a loan, usually taking from 1 to 3-5 days;

- Minimum requirements for the borrower. Often, a consumer loan can be obtained by the holder of a good credit history without providing collateral, guarantors, or even proof of income;

- No need for insurance, etc.

In addition, many banks provide the opportunity to use the money received under the consumer credit agreement for any needs. In this case, the borrower independently decides how to spend the loan funds. Such loans are called "non-purposeful". Their main advantage is that the bank does not control how you spend the borrowed money.

The disadvantages of consumer credit include:

- The high level of interest rate. Lack of collateral makes such loans risky for banks, which increases the amount of overpayment;

- Short credit period, rarely exceeding 1 year;

- small amount of disbursed funds.

The seeming availability and ease of consumer credit often leads to the fact that a person draws up several loans at the same time. As a result, he has a serious financial burden, which he can not always cope with.

Features of consumer credit

The main features of consumer lending are:

- short duration of the loan;

- small loan amount;

- Minimum requirements for the borrower.

It is these characteristics of consumer loans make them one of the most popular and in demand today, banking products. Read more here.

Alternatives to these loans

Other types of loans can be considered as alternatives to consumer loans, such as:

- Borrowing money from individuals. The easiest option to make a purchase, which has, however, several significant disadvantages. These include: an even higher interest rate on the loan, making its terms less favorable, the possibility of encountering fraudsters, and a simple debt collection scheme through the courts;

- Other types of bank loans. The most popular, along with consumer loans, are mortgages and car loans, as well as credit plastic cards. Each of these methods has its own pros and cons, and can be considered a serious alternative;

- Registration of microloans. In this case, the requirements to the client are even less significant, but the interest rate on the loan is significantly higher.

Final Words

As you can see, consumer credit has both advantages and disadvantages. It is important to carefully weigh all the pros and cons before making a decision to take out a loan. Remember that taking on debt is a serious responsibility, and you should only do so if you are absolutely sure that you will be able to repay the loan on time and in full. Otherwise, you risk damaging your credit history and getting into financial difficulties.