Consumer Credit: the Loans Guide


Consumer credit is the set of a series of activities that aim to encourage the purchase of goods by individuals. As a result, they allow us to support current consumption and expenditure or to postpone or pay in installments. Loans aimed at supporting investments, such as mortgages for house purchase or instrumental leasing, do not fall into the category of consumer credit.

In Italy, the only entities that can grant and disburse consumer credit are the financial and intermediaries regularly authorized and written in the appropriate registers. On the other hand, credit brokers and agents in financial activity carry out credit intermediation, and are enrolled in the Body of agents and credit brokers (OAM).

The institution of financial intermediation is now governed by the Consumer Code (Legislative Decree 6 September 2005 n. 206), and by the innovations made by Legislative Decree 141 of 13 August 2010. Therefore any financial activity of a credit institution that lends money to a private entity to purchase a good or service can be called a consumer credit initiative.

There are several consumer credit instruments, which can be grouped into 4 categories:

  • Credit cards
  • Loan finalized and not finalized
  • Personal loan
  • Employee loans

Credit Cards

Credit Cards

They are payment instruments that give the possibility to make purchases of goods and services at all the shops that join the credit card circuit or withdraw money from ATM distributors.

The bank allows the customer to have money available which will then be returned, usually on a monthly basis. According to the method of repayment of the amount used, there are two types of card: balance and revolving.

The balance credit cards are linked to the opening of a current account with a bank and require that the money spent during the previous month be debited on the day established by the contract. These types of cards offer greater guarantees to the bank, which associates a credit line (the credit limit) to the card, which represents the maximum monthly amount that the customer can spend.

Revolving cards are associated with a credit line established by the finance company. They are a real financing instrument since the return of the money spent also provides for an interest rate and can take place in the form of an installment or in a single solution.

Credit cards allow customers to take advantage of attractive rates and attractive discounts on various purchases for convenience. It consists in the possibility of spending greater amounts than available liquidity.

Loan finalized and not finalized

Loan finalized and not finalized

The loan aimed to be defined as such foresees that there is a specific purpose for which the loan is requested. In this way the use of money is tied.

The loan is activated at suppliers of goods to be purchased, such as affiliated shops or dealers. The services purchased will be paid in installments at zero rate with the money provided by the loan thanks

The finalized loan is sold, against a commission, by the affiliated shop when the customer buys a good or service (think of buying a car or furniture). In fact, two contracts are entered into: the purchase and the loan. The latter indicates the amount requested and the goods purchased.

The finalized loan can be requested by adults who are not bad payers, with an income that allows to support the installment and with the necessary guarantees.

he non-finalized loan does not imply an obligation to report the purpose for which the loan is requested. It can be requested from any bank without any obligation of conventions. The sum is paid directly to those who request it and the customer can use the money as he wishes.

In the event that there are specific conditions, the applicant may have to specify how he will use the sum.
he non-finalized loan can be granted to those who have the opportunity to present a paycheck as collateral. Usually a guarantor or guarantor is required.

Personal loan

Personal loan

The personal loan is a loan that does not form part of the targeted loans, since the customer will be able to obtain the liquidity he has to be spent immediately and as he sees fit. Indeed, it must not justify its use.

Personal loans can be requested to buy or renovate the house, to buy a car or motorbike or simply if you need some liquidity to meet certain expenses. They are granted to public, state and private employees.

Employee loans

Employee loans

The assignment of a fifth of the salary or pension provides for the customer to repay the installments by transferring a part (one fifth) of his salary.

Before granting the money, the finance company must inform the employer as the amount will be retained from the paycheck. However, the finance company cannot refuse to grant it.

It is a simple and convenient type of non-finalized loan given that the installments are automatically deducted from the salary or pension. Furthermore, the interest rate applied is always fixed and remains unchanged for the entire duration of the loan.

The assignment of the fifth can be granted to public and private employees and to pensioners. Workers with fixed-term contracts may also apply, provided that the duration of the loan is not greater than that indicated in the employment contract

The useful elements for analyzing consumer credit

The various consumer credit instruments have different characteristics with respect to the various elements:

  • istribution channel
  • Amount
  • Rates and wear thresholds
  • Finalità
  • Refund method
  • Presence insurance coverage
  • Guarantees offered
  • Type of applicant
  • Refund method

Early Redemption Loan

Early Redemption Loan

After listing the main types of consumer credit, another question should also be addressed, namely that of early repayment of the loan.

In fact, if you have a loan in progress and you want to pay it off in advance, since you have the necessary liquidity, you can close the loan before the natural maturity. Like? By returning the money in one go.

This choice can represent an advantageous solution, which allows you to save many interests and charges.

How much does it cost to pay off a loan in advance?

How much does it cost to pay off a loan in advance?

According to art. 40, paragraph 1, of the Consolidated Banking Act, it is possible to pay off one’s debt (even partially) at any time.

However, the law does not specify the cost of the operation and penalties could actually be provided. But what figures are we talking about?

The cost of the early repayment of the loan depends on the amount to be repaid and the moment when the contract would have expired. For example:

  • f the residual debt is equal to or less than 10,000 USD, the loan can be paid off in advance free of charge and the bank cannot apply any penalty;
  • f the residual debt is greater than 10,000 USD, the loan can be extinguished, but the bank will be able to request a penalty up to 1% of the residual debt.

In the event that the loans are greater than 10,000 USD, it is possible to have some discount in the penalty:

  • f more than one year is missing after the contract expires, the bank may request a maximum penalty of 1%;
  • f the contract expires less than one year, the bank may instead request a maximum penalty of 0.5%.

Partial extinction

In addition to total extinction, you can also opt for partial extinction. This is the case in which it has a good liquidity set aside, insufficient to completely extinguish the financing. What happens if you make this choice?

With rare exceptions, choosing to partially pay off the residual debt means proportionally reducing the amount of the repayment plan installment.

So the debt deadline will remain the same, but the monthly payment amounts will be changed.

However, some banks or financial institutions may give the possibility of keeping the amount of the installment intact, proportionally shortening the duration of the loan.

What changes is the advantage that can be obtained because by partially reducing the capital to be returned, you get a discount on interest.

How to request early repayment

How to request early repayment

To request the early repayment of the debt, it is sufficient to write a communication to be sent to the bank, indicating the financing number, the willingness to fully (or partially) pay off the loan and the eventual date of carrying out the operation.

Once the communication has been received, the bank will be able to carry out the calculations in order to book the closing of the loan. This is not a complex procedure.

The extinction of the residual debt usually takes place by debiting the bank account or a bank transfer can be arranged in the currency of the loan repayment date.

Early repayment of loan notification

Early repayment of loan notification

The argument ends by specifying that the bank is always required to deliver a document in which it certifies that the residual debt has been extinguished.

Loan termination documents are often not given in real time. However, it is always necessary to request it as it can be useful on several occasions and also to be able to demonstrate the effective extinction of the debt.

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