Whether to change car, TV, washing machine or cope with an unexpected expense, a loan of a third of French households use a consumer credit. Given the plethoric choice of loan offers from credit institutions or banks, know the operation of this kind of credit and the costs involved is essential to not quickly find yourself in a difficult financial situation.
The different types of consumer credit
First of all, the term consumer credit concerns purchases other than those related to real estate (purchases of services or of everyday consumer goods). The legislative rules concerning consumer credit apply to credits ranging from $ 200 to $ 75,000 and whose repayment term is greater than 3 months.
There are several types of which the main ones are:
- The loan allocated (for a specific expense, eg car loan or student loan)
- Personal loan (no special purpose)
- Revolving or permanent credit (permanent money reserve)
The different costs of consumer credit
Knowing precisely the cost of a credit will allow you to compare the offers of different lenders and choose the best offer, the most suited to your needs.
This cost varies depending on the type of credit (for example, a car loan is generally less expensive than a revolving credit), the repayment term and current economic conditions.
The cost of a loan is the amount borrowed plus interest earned. The law obliges the lending institutions to indicate on their advertisements and offers, the TEG (Global Effective Rate) or APR (Total Annual Effective Rate) which includes: the nominal interest rate (rate at which the lender borrows the money plus the corresponding commission), miscellaneous fees (registration fees, file fees) and, if applicable, the insurance premium when this is compulsory.
To be taken into account regarding the cost of a consumer credit
- Credit institutions must respect a maximum rate called “threshold of usury”, the TEG of a credit is capped at this threshold published each quarter by the Bank of France.
- The lending institution may require you to take out insurance, but you can choose the company that will insure you (the guarantees must be identical to those originally proposed.
For certain types of credits (student loan for example), guarantees can be requested to repay the loan in case of default of the borrower. These guarantees are of three types: surety, pledge and pledge. They may incur additional costs such as processing fees for example.
Do not forget that other ancillary costs may occur. Indeed, these can occur in case of early repayment. Conversely, late penalty fees may apply if you can not meet your claims on the scheduled dates.
Finally a credit commits you and must be repaid, check your repayment capabilities before you commit. It is important to add that it is imperative to read between the lines of each term assigned to a credit agreement. Compare several offers in order to benefit from the best rates by playing the competition between several financial institutions. Finally, ask yourself if insurance is really useful in your case.