Although the term “consumer loan” may not be familiar, you’re almost certainly familiar with consumer lending products—and you might be making payments on one of these loans right now.
While this type of loan can encompass many of the most commonly sought loans among today’s consumers, the features and uses of these loans can vary widely, as can the sources where you can apply for and fund these consumer loans. Here’s a brief overview of how consumer loans function as a key financial product offered by banks, credit unions, and other private lenders, along with other information to improve awareness of these borrowing options.
Consumer lending is a class of loan products targeted to consumers. To help consumers afford purchases they can’t afford to pay fully in cash, consumer lending products are designed to facilitate those purchases in exchange for interest paid to the lender.
Consumer lending is an important component of the U.S. economy. And, for many consumers, these lending options aren’t a vehicle for frivolous spending. Instead, they can eliminate barriers to important purchases that improve a consumer’s quality of life, and even strengthen their financial outlook.
A consumer loan is any type of loan issued to help a consumer afford a purchase. These purchases can range from small retail purchases acquired through a payment plan, to the biggest purchases you will make in your life, including your mortgage.
Depending on the kind of purchase you’re looking to make, there are many different types of consumer loans available to borrowers. Many borrowers will ask, “Is an auto loan a consumer loan? What about a mortgage?” In both cases, the answer is “yes.” Both auto loans and mortgages are consumer loans because they’re helping fund a consumer’s purchase.
Financial institutions as well as private lenders can issue a consumer loan for mortgages, auto purchases, student loans, credit cards, or other types of personal loans designed to fund a purchase.
A consumer finance company is any non-bank lender offering loans to consumers. Private financial institutions, retail lending, and other non-bank financing services all fall under this umbrella. While these companies may not be as familiar to you as traditional banks, they’re still subject to the same rules and regulations as a bank lender and can provide many of the same lending services to meet your financial needs.
While consumer loans are designed to help consumers afford large purchases, business loans are issued for the sole purpose of supporting a business. Because of the different goals of these loans, as well as the different entities responsible for repaying the loan, the application process and the terms of these loans differ from one another.
While a consumer’s credit history, pay stubs and other financial documents are used to process a consumer loan, business loan applications will focus on the financial statements of that business, as well as the credit report for the business, rather than the individual running the business.
Business loans may require collateral where a consumer loan will not. The terms of repayment also tend to be different: in general, business loans will require a shorter repayment period than consumer loans.
Curious how consumer finance sets itself apart from other types of financing? Here are some common characteristics of these financial services:
