Retail Credit Financing
Retail credit financing is an event that will never lose its relevance. Financing companies constantly offer potential clients various programs that can meet the requirements of the borrower as much as possible. Despite the fact that all banks, without exception, satisfy applications for receiving funds only if a person meets the specified requirements, they are generally willing to accept such transactions. What are the types of retail credit? What are the specifics of each type? How to choose the best option among so many offers?
What is a retail loan?
A retail loan is a cumulative monetary value. It consists of the main part-it is called the “principal” and the additional amount that the bank charges the client for using their capital – “interest”. These funds must be returned in full within the period specified in the contract. In fact, this is a product that a financial institution sells to a buyer on certain terms and for a certain price.
Types of loans
Types of retail loans are classified according to the lending terms, the conditions declared by banks, the specific features of interest rates, the amount of customer financing, and many other features. If you combine all these factors, it is preferable to group lending methods according to their intended purpose. So, there are the following types of retail loans.
The bank’s consumer financial assistance is a loan for any purpose. The borrower does not need to report to the company’s employees about where exactly he or she spent the borrowed money. This is very convenient and therefore attracts potential borrowers. Basically, in this way, people borrow money for repairs, the purchase of expensive household appliances, weddings, and other significant events. According to the loan duration, they can be medium-term and long-term. In the second case, we are talking about 3 or more years.
To get a personal loan, the applicant must have:
- collateral (significantly increases the chance that the application will be approved);
- regular source of income that needs to be documented;
- good credit score.
A distinctive feature of such loans is the dependence of the amount of interest on the term of the contract. The longer the agreement lasts, the greater the overpayment. The amount that can be obtained in this way will not be too significant in comparison with other loan options provided to the population. The advantage of personal loans is a wide range of programs offered by banks, where everyone is able to find the perfect solution to financial problems.
A mortgage loan can be obtained for any real estate object — whether it is housing in a new building or the secondary market. You can apply for a mortgage, you can buy a house, a private cottage, an apartment. Even the category of citizens who do not have large financial savings necessary for the entry fee can buy square meters. Under consumer loan programs, it usually reaches 30% of the total real estate price, while in this case, it is about 13-15%. The terms of the mortgage provide for fairly large amounts of credit, long terms of the contract, and minimal overpayments at interest rates.
The amount of monthly contributions is rather large, so a potential borrower should adequately assess their solvency before resorting to obtaining a mortgage. Otherwise, the apartment (which serves as collateral) may become the property of the credit company that offers financing to customers
. A mandatory requirement of the bank is the presence of guarantors.
Almost all institutions offer their clients the following types of loans:
- Housing in a new building;
- Secondary market;
- Private development;
- Purchase of a land plot for a future house;
- Country cottage.
It belongs to the category of targeted financing. It is usually a high-dollar loan that comes with relatively low-interest rates. Such a credit policy is more profitable for the borrower than ordinary consumer assistance. According to statistics, car loans are one of the most popular forms of credit financing for individuals.
The average term for providing funds varies in the range from 1 to 5 years. If we are talking about an expensive car, this period can be doubled. The requirement that all banks insist on— the vehicle will be collateral. In addition to this refund option, the client will probably be offered additional services, for example, life, health, or car insurance. If the client refuses them, he or she will most likely not receive the borrowed funds. In this case, each financial institution determines the list of documents independently. Identification documents are mandatory, and if available, proof of income.
A credit card is a convenient option when it comes to a relatively small amount that is always at hand. At the same time, the user can perform operations not only in any state but also outside the United States, bypassing currency exchange procedures. Such cards may have a limited validity period, or they may be renewable.
The first option is more convenient. Paying the loan principal, the person has the right to continue to use the balance available on the card for their own purposes.
Collateral is a guarantee that the lender will receive its money back in any situation. Even if the client will not be able to make current payments, the subject of compensation for the bank will be the security, which will act as a collateral property value. Subsequently, it will be sold at auction, and the proceeds will be used to repay debt obligations.
The specificity of such transactions is that the value of the collateral is almost always much less than the average market value of the property. This measure is the main insurance option if the value in the real estate market begins to fluctuate in a smaller direction.
If there are no guarantors and collateral in the contract, such a transaction is classified as an unsecured loan. Amounts with such conditions are not particularly large. This financing option has the following features:
- the loan purpose can be any – no one will control it;
- such a loan is classified as risky for the lender;
- the transaction is relatively short-lived;
- high-interest rates serve as a small guarantee against possible risks;
- such operations are based on the principle of trust.