CONSUMER LOAN: OPEN END AND INSTALLMENT

2007-03-08 10:33:40

( Financial )



Consumer loan establishes consumer credit granted for personal use of borrowers. It is usually unsecured and relies on borrower’s integrity and capacity to pay. Open ended credit and installment loans are the two categories that consumer loans are availed.

Open End Credit

Open end credit is the most common way consumers purchase on credit. It has no established fixed payments. Consumers pay until the outstanding balance is fully paid. Charge accounts from department stores and credit cards are the basic form of open end credit that consumers availed. Credit limits are set for individual borrowers based on their income and debt history.

Installment Loans

Installment loans are consumer loan wherein principal and interest payments are amortized in several payments. These are loans used for the purchase of cars, boats, house and lot and home improvements. It is even used to consolidate smaller loans with lower amount of repayments. Interest rates charged by lenders depend on borrower’s credit history, current financial performance and the amount of down payment provided.

Personal property and real estate loans are availed through installment consumer loans. Personal loans cover items that are transferable from one location to another. Boats, cars and home appliances are personal properties availed from consumer loan. Lenders repossessed these items when borrowers fail to meet loan payments.

Real estate loans, on the other hand, are loans on fixed properties that cannot be moved from one location to another. Land and homes are real estate loans that consumers availed through a mortgage. These loans are one of the most expensive types of consumer loan. Thus, the amount of monthly repayment is a major concern of prospective borrowers. It must be congruent with the monthly income of borrowers to make real estate loan affordable.

The cost of consumer loan varies across lenders. Borrowers are advised to ship around for lenders and compare financial charges before deciding to close a loan with a particular lender.


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