What Is Consumer Credit? And its Sources, Advantages, Disadvantages

What Is Consumer Credit?

The division of retail banking that deals with lending money to consumers is called Consumer Credit.

In other words consumer credit is basically the amount of credit used by consumers to purchase non-investment goods or services. Generally Consumer credit has 3 parties such as:-

i.Borrower or Consumer:

The person or institution who has applied and received a monetary loan from a lender.

ii.Lender or Financier:

The person or institution that provides money temporarily on condition that the amount should be returned is called lender or financer.

iii.Seller or Dealer:

The person who deals with buying and selling of consumer goods.

Sources Of Consumer Credit

1.Commercial Bank

The financial institutions that accepts deposits from public and grants loan to public is called Commercial Bank. Normally they provide various types of loan to consumers for making purchases.

2.Consumer Finance Companies

The finance companies that provides personal installment loan to the applicants without checking any credit history is called Consumer Finance Companies. Generally there is higher risk and high rate of interest also charged on such finance.

3.Self Finance Companies

The finance company that provides loan to the consumers for purchasing high value items is called Self Finance Companies. Generally the consumer has to repay their loan amount through monthly instalment payment directly to such financing companies.

4.Insurance Companies

The insurance companies are also consider as another source of consumer finance. Generally they provide credit for consumers upto 80% of the accumulated cash value of public and change low rate of interest and loan amount.

5.Savings and loan association

The another important sources of consumer finance is saving and loan association. Generally they provide long term mortgage loans and personal loans against their savings account.

Advantages Of Consumer Credit


Consumer finance is also beneficial from a safety point of view. It enables consumers to travel distant places without carrying large amounts of cash in hand. It also helps them to have cash in hand. It also helps them with their cash requirement in distant places.

2.Large Purchases

The consumer credit enables consumers to make large purchase. It helps them to purchase high value products immediately and make payment on any instalment basis over a period.

3.Helpful in emergency

The Consumer Credit not only helpful in purchasing asset but also helpful in emergency. It enables consumers to meet there on expected cost arranging from helps needed or repained of long term assets.


The availability of consumer credit is so convener. Generally it is available to consumers at their down step at a very low rate of interest.

5.Know need of borrowing from relating

The consumer credit enables individuals to acess fund when needed without having cash relative or funds for money. It also helps them to avoid individuals or companies that are charging high rates of interest for loan amounts.

Disadvantages Of Consumer Credit

1.Several Fees and Charges

The presence of several charges are consider as another limitations of consumer credit. Generally finance companies undertake a number of paperworks before financing credit or loan to consumers. It also costs more in comparison to other sources of finance.

2.Costly source of finance

The huge disadvantages with a consumers loan is that Government have to pay high interest rate on the loan amount. Generally a higher rate of interest charged on such finance as the lenders has control and property for assets of consumers.

3.Over outstanding debts

The availability of consumer credit encourages individual to spend more than ten years. It directly increases consumer debt and reduces their creditworthiness. It also creates a bad name for consumers when they fail to repay their debt.

4.Unrealistic Lifestyle

The availbility consumers credit encourages consumer to leaving a lifestyle that is beyond there means. It also reduces their income available in future if they are unable to handle consumer credit effectively.

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