Consumer credit is money, goods or services provided to an individual in return for a payment. When you shop for the best solution to finance your projects or just personal needs, besides looking for the best personal loan interest rates, you have to check also the relation between your particular requirements and the appropriate type of credit or loans applicable. For example, can you finance your college fees from a credit card, just because the loan interest rates on such short term personal loans are the best? Of course, not.
Common forms include consumer credit:
- Credit cards
- Store cards
- Auto Financing
- RV Financing
- Education Loans
- Personal loans
- Credit lines
The main types of consumer credit are based on the collateral: Secured Loans / Unsecured Loans.
Secured loans are loans for which the borrower is required to guarantee repayment, by pledging with property, for instance a car, a house etc. This property is called security or collateral. Because of the pledging, secured loans are given in larger amounts and have lower interest rates. However, there is a risk of losing the property used as security, in the event that the loan is not paid off.
Unsecured loans are loans that are given without pledges of repayment. This means that the borrower is not required to provide security to get the loan. Because of the high risk involved, unsecured loans are given out in smaller amounts and have higher interest rates. The lenders raise the interest rates in an effort to recover their money as quickly as possible. Most personal loans are unsecured loans.
A personal loan is a ‘small expense’ loan that is mostly used by people to finance their day to day emergencies. They come in smaller amounts and therefore, just like most unsecured loans, they are easily approved. When you’re inside this loans category, providing your credit score is ok and your debt to income ratio looks good, the proper way to choose the best option is by opting for the best personal loans interest rates.
Within the category of personal loans are also included:
– Payday loans
– Title Loans truck
In this type of debt are not included those debts contracted for the purchase of real estate or margin investment accounts. For example, a mortgage to buy a house is not consumer credit. But can you borrow money in small amounts for financing a personal project or just a consumer need, against a mortgage? Yes, you can do that, so the main way of differentiate various loans is basically done by analyzing the purpose of the loan use.