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“We have the most affordable consumer credit as a personal loan type… Be sure to visit our branch for the cheapest consumer credits… We definitely have loans that other banks do not have..” We always see similar phrases in advertisements that intervene while watching videos on television or YouTube. 🙂 The ads we see when we don’t need them seem to suddenly disappear if we need personal loan or consumer credit, right? 🙂
In addition, when we go to bank branches, every credit type seems very affordable to us, and thanks to the magical presentations of employees with high financial literacy, all personal loans seem very affordable to us 😊 In this article, we offer you some tips that will contribute to your career management, personal development, as well as provide you with the information infrastructure to take out a loan when you need it in your daily life.
However, if you are preparing for bank interviews, we will answer some questions which you may encounter during the interview in this article. Finally, we say that; whether you need personal loan or not, reading this article will provide you with long-term contributions. 🙂
Consumer Credit Definition
It is easy, is not it? 🙂 In other words, consumer credit is cash loan given by banks to meet people’s individual needs. Sometimes we need money for a home renovation, sometimes to buy a durable goods or a television and sometimes to meet our other individual needs. In this case, if we do not have enough money, we apply for a consumer credit, which is a type of personal loan.
First of all, we should say that loans are generally divided into two types, revolving credits and instalment credits, according to their functions. Revolving credits are loans that can be used again within the limit. However, instalment loans cannot be used again after they are used. Moreover, there two more types of credit as secured credit and unsecured credits. Secured credits are used with collaterals.
So, Credits are divided into 2 according to the purpose of use. if you are not buying a car or a house, when you go to the bank, all you have to do is tell the banker “I came to apply for a consumer loan“. In this context, although it varies from country to country, under normal circumstances the maturity of a consumer loan varies between 12 months and 36 months. By the way, let us also point out that loans are basically divided into two: personal and commercial loans.
Personal Loans are also divided into two: 1- ) Consumer Credits 2- ) Credit Cards. Accordingly, consumer credits are a sub-item of personal loans.
Types of Credits (Purpose of Use):
1- Personal Loan:
1.1–)) Consumer Credit
1.2 –)) Auto – Vehicle Credit
1.3–)) Mortgage – House Credit
1.4–)) Credit Carts
2- Commercial Loan:
Personal Loan Maturities
After stating that consumer loans are a type of personal loan, it is necessary to talk about their maturities.
Banking Regulation and Supervision Boards of countries periodically shorten or extend consumer loan maturities depending on the period and the targets of monetary policy.
However, if we look at it in general terms, personal loan with a maturity between 1-12 months are called short-term and consumer credits with a maturity between 12-36 months are called medium-term and loans with a maturity longer than 36 months are called long-term personal loan.
What is a Personal Loan?
We have previously stated that consumer credit is a type of personal loan. In this context, consumer credits are loans given to consumers, that is, people with “any income”, for their “individual needs” such as buying a house, a car, or making renovations.
Personal loans are lower in amount than commercial loan. In other words, if a commercial loan is required, it may be 100 Million USD, but with exceptions, the individual need or personal loan is not expected to be 100 Million USD. In this context, let us remind you that mortgage – house credits used to buy a house and auto – vehicle loans used to buy a car are types of consumer loans.
There is a fundamental difference between vehicle and housing loans and consumer credits. In vehicle and housing loans, the loan amount is generally paid to the vehicle or home owner while consumer credit amount is paid to the borrower. So, for example, when you take out a mortgage loan to buy a house, the bank will pay the loan amount to the homeowner, not to you.
The situation is the same with vehicle loans. For example, let’s say you have 500 thousand USD and you want to buy a vehicle for 750 thousand USD. When you apply to the bank for a 250 thousand USD vehicle loan, the bank will want to combine this amount with your 500 thousand USD and pay it to the vehicle owner or dealer as 750 thousand USD. On the other hand, In consumer credits, the loan amount is paid directly to you by the bank. Although there are exceptions, this is generally the practice in vehicle and housing loans. By the way, we should also point out that the practice may vary from country to country.
Consumer Credit vs Personal Loan?
As we mentioned before, it is a type of personal loan.
Its difference from consumer credit is that it is a subtype of it. In addition, consumer credits are generally lower in amount than consumer loans.
Lowest Personal Loan Interest Rate?
Consumer credit interest rate is a very delicate issue. In other words, when banks talk about the deposit interest rate, they use the annual interest rate in their advertisements or when explaining the subject to their customers. However, when they talk about loan interest rate, they use the monthly interest rate. The reason for this is actually entirely psychological and based on perception management. So, when you deposit your money in the bank, they tell you that they give you, for example, 48% annual interest. 48 percent sounds like a lot, right? 😊 When you hear this, you will think, “How generous the banks are. They give me loans with 5 percent, but when I deposit, they pay me 48 percent interest.”
However, the rate stated as loan interest is the monthly rate, and if we multiply this monthly 5 percent interest by 12 to reach the annual rate, we get 60 percent annual loan interest. In line with that, banks that collect 48 percent of the money and give 60 percent of the money as loans earn money with the spread between them.
The main point here is to find the annual interest cost by multiplying the monthly interest rate by 12 when it comes to consumer loan interest rate. Please note that some more expense items such as taxes will be added to this interest. At this point, our suggestion to you is to ask the banker for a “sample payment plan” when applying for a consumer loan.
In this way, you will have access to both annual consumer credit interest rate information and your total loan cost, including taxes.
What Credit Score? | How to Increase?
Credit score is an important evaluation criterion in personal loan requests. People who have paid their previous loans regularly have a high credit score. Although it varies from country to country, for example, in the USA, the credit score, which is the most important data for real people when taking out a loan, varies between 300 and 850.
By the way, if the person did not pay the loan he had previously taken and the bank started legal proceedings, his credit score is generally determined as zero as long as this pursuit continues.
On the other hand, people who make their existing credit card, additional account or consumer loan payments without delay have a score of 850 or close to 850.
So, what should I do to increase my credit score? If you ask, the answer is actually simple. If you make your current payments on time, without delay and regularly, your credit score will naturally increase.
How to calculate Credit Limit?
Nowadays, in the internet age, it would be a bit strange to explain consumer credit or personal loan calculation methods to you manually by writing. Therefore, it would be more logical for us to give you links to the loan calculation panels on a few banks’ websites.
However, the logic of calculating loan interest is very simple, just like we learned in middle school or high school.
• Personal Loan interest calculation in the simplest sense: (Loan Principal Amount X Number of Days X Interest Rate) / 365,000
To give an example, the monthly interest for a 100 thousand USD loan with an annual interest rate of 45% will be calculated as follows:
(100.000 X 0.45 X 30) / 365.000=3.698.-USD
The annual interest of 100,000 USD at a 45% interest rate will be: 3.698 x 12 = 44.383.-USD.
In this context, for more complex calculations, the list of consumer loan calculation panels of the 4 most well-known banks is as follows:
- Consumer CU (Credit Union)
- Wells Fargo Consumer Loans
- Santander Auto Financial
- Transunion Customer Service
Customer Finance Options
First of all, it should be noted that the cheapest personal loan varies between banks, from month to month, from week to week and even from day to day, depending on the economic conditions of the period and the monetary policies of the Central Banks. In this context, we recommend you read our article on why the US Fed increased interest rates. So, while the most suitable consumer loan interest rate was 0.89% 10 years ago, we are happy when we find an interest rate of 3.95% in 2024, right? 😊 Accordingly, let’s admit from the beginning that we must first determine the most appropriate loan amount that we can pay according to our income.
In other words, even if our need is 100 thousand USD, if the monthly instalment payment exceeds our income, the bank will probably reject our request. Even if the bank does not reject it, we should not take out a loan whose monthly instalment exceeds our monthly verifiable income, right? Then, as we will indicate below, we need to determine the loan with the most appropriate interest rate and total cost, including all expenses.
What we mean is, don’t pay attention to the big guys saying “we have the cheapest personal loan or consumer credit” in internet or television commercials 😊 They have to say that…
In addition, some banks keep the personal loan interest rate low and increase the “loan expense” amount in order to make themselves look more attractive in terms of consumer credit.
At this point, while asking the bank employee for a sample loan payment plan, also ask them to write down expenses and all other compulsory products and expenses on this paper, and when deciding to use a loan, make your decision by comparing the loans.
Loan Application List
Finally, let’s list the information and documents you need to ask from the banker when applying for a consumer credit or personal loan.
- Sample Payment Plan showing the interest rate and expenses in detail
- Document showing conditions such as life insurance and all compulsory product.
- A copy of the loan agreement.
Consumer Credit Application
When you apply for a consumer credit or personal loan online, you will see the results of the banks that pay the most for advertising. However, no one will tell you that the bank you borrow from is also important when entering into a loan relationship. What we mean is that; Even if the interest rate seems a little more attractive, a loan should not be taken from every bank. You should read all the contracts that banks make you sign when taking out a loan at least once. This is important for your awareness and information.
