In what situations is consumer credit a better option?

According to the Credit Register of the Bank of Latvia, in 2018 consumer credit accounted for the largest share of active credit liabilities – 38.1% of all borrowers had applied for consumer credit with banks and non-bank lenders. Comparing consumer loans will help you find the answer to the question – why is this type of loan so popular?

Consumer credit is a handy and relatively easy loan. In our latest article, let’s talk about the situations worth considering when applying for a consumer credit, and how to make the right choice. 

What is a Consumer Credit?

 What is a Consumer Credit?

Consumer credit is a long-term loan with a high credit limit. The main characteristics of the credit are as follows:

  • credit limit from a few hundred to several thousand euros;
  • average repayment term of 3 to 5 years;
  • fixed interest rate;
  • fixed loan repayment schedule.

On the one hand, everything is simple – a consumer loan without collateral is for the borrower’s private consumption: everyday expenses, unplanned purchases, various life plans, etc. However, consumer credit is not the only type of loan, as both bank and non-bank lenders also offer other loans, such as:

  • quick loans or payday loans;
  • credit cards;
  • credit lines.

All of these loans are also for private use (unlike mortgages and leasing which are suitable for the purchase of a specific item – real estate or vehicle). Why, in the face of fierce competition, is it precisely the consumer credit that manages to stay at the top of the most popular loan rating? Let’s find out in the following article!

Comparison of consumer loans with other types of loans

 Comparison of consumer loans with other types of loans

Loans are divided into short-term and long-term loans. Short-term credit is intended only for unplanned daily expenses, as the credit limit is relatively small and the repayment term is only 30 days. In contrast, long-term loans are more diversified. In addition to consumer credit, credit lines and credit cards are available to consumers.

Credit line – financial security pillow

A credit line is a type of consumer credit that is suitable for long-term spending. Unlike a consumer credit, which is transferred in full to the borrower’s bank account, the credit line allows the borrower to withdraw from the credit line account the amount needed. Interest is charged only on the amounts spent and, upon repayment, the borrower may borrow again under one contract. A credit line can be helpful if you have a long-term spend, such as:

  • the borrower expects prolonged treatment;
  • the repair has been started but no estimate has been made and the total cost of the repair has not been calculated;
  • there is a big event planned, such as a wedding, and it is not known whether their own savings will be enough.

The main advantages of a credit line are the flexible repayment of the loan (the borrower can make minimum monthly payments or pay off with the lender faster) and the ability to withdraw the money gradually.

Credit card – additional funds for more convenient payments

A credit card, or credit line on a card, is another type of loan that can be used as needed. The credit card holder pays interest only on the amount of credit limit spent and may make minimum or higher monthly payments. However, it is important to remember that there are several differences between a credit card and a credit line:

  • a monthly fee is charged for servicing the card;
  • some credit cards have purchase insurance;
  • the credit card credit line limits are not as high as the credit line and consumer credit;
  • credit card processing is more time consuming because you need to prepare, ship, and activate your card.

The credit card serves as an additional guarantee of financial security, as the credit card holder can afford a little more and not postpone important purchases at a later date, provided that repayment of the spent amount will not cause any difficulty. A credit card can be useful for travel, but a credit line can be used as a cash reserve for future spending.

Despite their differences, all long-term loans also have common features. Consumer loans, credit lines and credit cards:

  • available both at banks and with non-bank lenders;
  • are granted without security and pledge;
  • can be used for purposes other than those mentioned in the credit application.

In order to avoid overpayment, it is important to choose the most appropriate type of loan. Find out how to do this in the article below!

Top situations where consumer credit can help

 TOP situations where consumer credit can help

A consumer loan without a guarantor and collateral can be a good solution when one-time spending requires a large sum of money and you need to make an immediate purchase. Compared to a credit line and a credit card, consumer credit is immediately available to the borrower in full. Usually, you apply for this type of credit if you need the money:

  • for repair. Both cosmetic repairs and home remodeling require significant spending, so credit is an alternative to self-saving money for months and even years. Consumer credit allows you to buy the best building materials, furniture and interior accessories and pay for skilled labor;
  • for urgent medical expenses. Surgery or an emergency visit to the dentist almost always means a big bill, which cannot always be covered by savings alone. A long-term loan allows you to pay for important services and gradually repay the loan over many months;
  • big purchase. Consumer credit can be used to pay for household appliances, computer equipment, new kitchen equipment. Although many vendors offer such goods on leasing, sometimes consumer credit terms are more favorable.

If in doubt, consumer credit is the best option for your situation, ask yourself whether you will need extra money once or will it be needed in the future as the total amount of the loan is unknown. In the first case, a consumer loan may be useful for you, and in the second case, other types of loans. Choose consumer credit for a particular purchase, credit line or credit card for long-term spending.

However, no matter what purpose you need the loan for, the borrower must follow the lender’s terms anyway. At the end of the article, we’ll tell you how to test your chances of getting the loan you want!

Portrait of the ideal borrower

 Portrait of the ideal borrower

The main prerequisite for obtaining a consumer credit is sufficient solvency and sound financial situation. Neither a consumer loan nor any other type of credit is designed to combat chronic money shortages and debt cancellation, so the ability to repay the loan at maturity is the first to be tested by the lender.

To qualify for a consumer credit, you must:

  • Latvian citizen;
  • at a certain age (most lenders lend to people between 20 and 65);
  • with an active mobile phone connection and an account with one of the banks operating in Latvia;
  • with a stable and official income.

Why is official income also an important criterion for getting a loan? Because the lender may require proof of income, such as a bank statement. If the salary is paid in an envelope, it is not possible to check the solvency of the applicant and the loan may be refused.

Getting a consumer credit is relatively easy – if you meet the creditor’s requirements, the application, review and money transfer process takes less than one business day. In the case of a very large sum, the lender may need a little more time, but overall, a consumer credit without collateral and surety is one of the fastest ways to borrow money today.

Consumer credit can help you cope with unexpected spending and fulfill your long-held plans, but you need to choose your credit very carefully to be successful. Comparing consumer loans at Blanche DuBois will help you find the best loan – use our platform yourself and recommend it to your friends!