What is a consumer credit?
Consumer credit is an easy payment tool. It allows a lender (financial institution) to grant a loan to a person called a borrower. The total amount of this credit must be between € 200 and € 75,000. In addition, this credit must provide for a repayment period of more than 3 months.
However, this credit does not finance any purchase by the borrower. To qualify as consumer credit, the credit must not be used to finance transactions related to real estate such as homeownership or financing the construction of a house. Thus, the borrower will not be able to buy land, a house or an apartment, for example. This credit then makes it possible to finance the purchase of consumer goods (food, furniture, computers, vehicles, etc.). A borrower can benefit from such a credit to finance his daily purchases. The same applies to carrying out work if it is renovation work and not work allowing the construction of a good.
Finally, payment terms, bank overdrafts, payment facilities (type 3x free of charge) which meet the definition above are also part of this category of credit.
Once the consumer credit is concluded, the borrower will have to repay each month part of the amount borrowed, called “capital”, and interest. Interest and various ancillary costs, such as administrative fees, represent the cost of credit for the borrower. To obtain the total cost of the credit, it suffices to add the price of the insurance to the interest and ancillary costs.
The different types of consumer credit
There are two main distinctions in this matter: personal loan / revolving credit and the affected loan / unaffected loan.
Regarding the personal loan, this is the most classic type of consumer credit. In this case, the lender (the financial institution) undertakes to pay the borrower (the consumer) the agreed sum in one go. As soon as the loan is concluded, the borrower knows the schedule of his repayments. That is to say that the borrower knows both the amount of the monthly payments to be repaid, the repayment period (the number of monthly payments) and the cost of the credit (interest + ancillary costs).
Unlike the personal loan, revolving credit works through a different mechanism. This consumer credit works like a “money reserve”. It is indeed a form of credit that requires the lender to make available to the borrower a sum of money that the latter can reuse as and when repayments to finance non-predefined purchases. within the limit of a maximum ceiling and a maximum duration.
As long as the “cash reserve” is not used by the borrower, he has nothing to repay. However, as soon as the borrower draws on this "money reserve", he will have to replenish it by paying monthly payments. These monthly payments then make it possible to reconstitute this reserve again and the borrower can once again draw on it by committing to pay new monthly payments.
However, for this category of consumer credit, the interest rates are higher. This is a counterpart to the flexibility left to the borrower.
The duration of the revolving credit is 1 year but the duration can be renewed each year. However, the lender must consult each year the national file of incidents of repayment of loans to individuals (FICP), listing information on payment incidents, before proposing to the borrower to renew the credit. In addition, the lender must check the creditworthiness of the borrower every 3 years.
In order to prevent monthly payments from accumulating, the law provides for a maximum repayment period of 3 years for loans of an amount less than or equal to € 3,000. For loans of a higher amount, the maximum repayment period is set at 5 years.
If the borrower has previously defined what he intends to buy, then, when he concludes a consumer credit to finance this purchase, we will speak of a loan allocated to the purchase of this good. The contract must then mention the good or the service that the credit is used to finance so that the contract can be legally valid. For example, when the borrower wants to buy a car and he needs a loan to finance this purchase, the seller will offer him this type of credit to finance the purchase of this car.
For this type of consumer credit (assigned loan), we find personal loans that were concluded with the aim of buying a predefined property.
The example stated above meets both the definition of consumer credit as a personal loan and an assigned loan.
The unallocated loan is the opposite of the affected loan. That is to say that the borrower will subscribe to a consumer credit without having previously defined what he is going to buy.
What are the advantages and disadvantages of consumer credit?
This type of credit has the advantage, for the borrower, of being able to immediately benefit from the property acquired when the borrower did not initially have the sum required to purchase the property.
In addition, consumer credit makes it possible to optimize the management of the family budget in that it allows the cost of purchasing a good to be spread over time. It may actually be more beneficial to pay several monthly installments to buy a good at a high price than to pay it all at once.
In order to avoid situations in which the borrower would have difficulty repaying his monthly payments, the law requires the lender to consult the national file of incidents of repayment of loans to individuals (FICP) to verify that the borrower is there. not registered.
The borrower also benefits from a withdrawal period if he wishes to reverse his decision. He then benefits from a period of 14 calendar days (Saturday, Sunday and public holidays included) after the conclusion of the consumer credit if he changes his mind. In case of conclusion of an affected loan, the withdrawal period is 3 days if the borrower requests the immediate delivery of the property.
The cost of consumer credit (interest and various fees) is added to the capital initially subscribed, so that the borrower will have to repay an amount greater than that which was necessary for the purchase of the property.
Moreover, this type of credit can turn out to be extremely expensive because of the total interest payable on the amount borrowed. Indeed, interest rates increase according to the repayment term. Thus, the longer the loan repayment period (and the lower the monthly payments), the higher the interest to be repaid.
In addition, if repayment difficulties arise, they can lead to difficult situations: seizure of the property, call for sureties, registration with the FICP. You should not take out a loan lightly. Indeed, consumer credit, like any type of credit, can quickly lead to over-indebtedness. This is particularly the case if a revolving credit is taken out. It is then necessary to be certain of being able to repay the monthly payments of this credit until the term provided for in the contract.
Where to get a consumer credit?
It is possible to obtain a consumer credit from a bank or a credit institution (specialized in consumer credit or not). For some loans, assigned loan type, it is possible to subscribe directly to large-scale distribution brands, in department stores, etc.
Store loyalty cards, which make it possible to take advantage of promotional offers, most often include a consumer credit function by allowing payment facilities, such as 3x free of charge and others.
How can I obtain a consumer credit?
Before granting a consumer credit, the lender is subject to several obligations:
- Delivery of a pre-contractual information sheet to the future borrower
- Explanation of the characteristics and operation of credit
- Checking the borrower's creditworthiness
The pre-contractual information sheet is a document summarizing the characteristics of the consumer credit that the borrower wishes to take out. This sheet is a good way to compare offers on the market before committing.
After delivery of the pre-contractual information sheet, the lender submits a consumer credit offer to the future borrower. As a professional, the lender is subject to an information obligation before the borrower signs up to the consumer credit contract. This obliges the lender to inform the future borrower of all the characteristics and specifics of the consumer credit that will be taken out. It includes the loan amount, the repayment period, the amount of monthly payments. This credit offer also indicates the amount of the APR in% (annual percentage rate) which corresponds to the amount of interest and all ancillary costs. Knowing this APR, in addition to the amount loaned, allows the borrower to determine the cost of the credit taken out.
Finally, the offer also indicates the total cost of credit, expressed in US dollars, with or without insurance. This pre-contractual information obligation allows the lender to warn the future borrower of the consequences of a consumer credit on his financial situation, in particular in the event of default. This makes it possible to find the offer that best suits the borrower's financial situation.
The lender should also check the creditworthiness of the borrower. To do this, the lender has the obligation to verify if the borrower is registered with the FICP. In addition, the lender must submit a pre-contractual information sheet summarizing the borrower's resources and expenses, who must sign it. If the amount of the loan is greater than 3,000 US dollars, the borrower must provide the necessary supporting documents, including pay slips, property tax (if the future borrower also owns a home).
The lender will also ask for other documents to be provided such as a photocopy of the identity document, a bank identity statement (RIB), proof of address of less than 3 months ...
Consumer credit insurance aims to guarantee the repayment of this credit by covering the risks linked to the death of the borrower, disability, incapacity for work, loss of employment. It all depends on the insurance to which the borrower will subscribe. In the event of significant health problems, it is possible to benefit from the AERAS agreement (Insure and Borrow with an Aggravated Health Risk).
Insurance is usually offered by the institution offering the credit. However, it is not compulsory, although the institution granting the credit strongly encourages the borrower to subscribe to it. However, if the borrower decides to subscribe, he is free to choose the establishment of his choice to insure. There is therefore no obligation to take out insurance, nor to subscribe to that presented by the financial institution granting the credit.