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Consumer credit is intended for individuals and is granted by banks or intermediaries in banking operations and payment services. It is a loan for the purchase of goods and services such as buying a vehicle or household appliances, for example. This type of credit is heavily regulated by regulatory provisions in France, particularly to prevent situations of over-indebtedness. Who are they and how do they work? Are there traps to avoid? Uniprêt, a company specialized in credit consolidation will answer you.
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Who are they?
There are several categories of consumer credit:
- the loan allocated to a specific expense, the most common being auto loans or student loans.
- personal loan not linked to a specific expense.
- revolving personal credit (this is money borrowed via credit cards)
- online credit on the Internet
Like any other credit, consumer credit has a number of unique characteristics that must be fully understood to avoid finding oneself in a complicated financial situation.
The interest rate
Consumer credit is often offered at higher rates than what is actually available on the market, so it is important to know the total cost of borrowing before proceeding. Here is the formula to calculate the total cost of a loan yourself:
There are also calculators online where you can perform this operation in just a few clicks.
Small monthly payments
Lending institutions regularly offer very low monthly payments, on the order of a few dozen euros. This is often a revolving credit (also known as permanent credit, revolving credit, or replenishable credit) that includes the money lent for a period of one year and can be renewed annually. This type of credit is often variable, making it almost impossible to know the final cost of borrowing. Additionally, these loans are often granted at rates close to the maximum rate allowed by the Banque de France. Therefore, be cautious about this point, which, despite attractive monthly payments, can be much more expensive in the end. Note that a loan commits you and must be repaid, so you should read all the mentions and details of the contract before signing.
Optional insurance
borrower insurance allows for the payment of remaining monthly payments in certain well-defined cases. This most often includes death, total and irreversible loss of autonomy, permanent disability, temporary incapacity to work, and job loss. Unlike other types of loans, it is not mandatory with consumer credit. It is charged as an additional percentage to the interest on the loan, so it is necessary to check that the rate charged by your lender corresponds to market practices. However, it remains a good guarantee for some lenders.
For small amounts, it may be interesting not to take out insurance. Indeed, if the total amount owed does not exceed your repayment capacity, not taking out insurance will reduce the total cost of the loan.
Early repayment
Early repayments are common for this type of credit. Since the amounts are generally not very high, an unexpected cash flow may be enough to cover the remaining monthly payments. However, credit agencies charge fees for this service, which can be very high, so attention must be paid to this point from the moment the contract is signed.
It is difficult to control consumer credit because there are factors that come into play. The important thing to avoid unpleasant surprises is to always read the contracts, know the rates from the beginning, the duration of the commitment (renewable or not), and the conditions for early repayment. Be wary of accumulating credits which, due to their ease of obtaining, can become a response to any immediate financing need. In any case, and in the face of multiple current credits (consumer credits but also real estate), budget management can become very complicated. Credit exchange allows combining all monthly payments into a single reduced rate at a lower rate. It offers an alternative to taking out a new loan because it also provides liquidity to carry out a project or meet a financing need.
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Tag : how to consolidate your loans