What is Consumer Finance?

• The term consumer finance refers to the activities

involved in granting credit to consumers to enable
them to possess goods meant for everyday use.

• Consumer finance can include just about any type

of lending activity that results in the extension of
credit to a consumer.
Consumers financing covers a wide range of products such as
cars, Televisions, washing machines, refrigerators, Air
conditioners, computers etc.
Demand for Consumer Finance
 Features of Consumer Finance

• Eligibility
The basic eligibility for consumer finance is the income of the individual
customer and the nature of employment. The EMI’s are worked out on the
basis of number of installments and tenure of employment of the customer.

• Guarantee
Financiers insist on guarantee for the credit availed by the customer.
Guarantee is obtained in order to ensure prompt payment of the installment.

• Tenure
Consumer finance is granted for short period ranging from 3 months to 5 yrs.
The tenure also depends on the value of the asset purchased. Assets of smaller
value are given short term credit and assets of higher value are given
comparatively longer term credit.
 Features of Consumer Finance

• Rate of interest
The effective rate of consumer finance is much higher than the rates applicable to
business finance. The effective interest varies between 20% and 30%. Rates vary
depending on loan type.

• Other charges
in addition to rate of interest finance companies also charge
documentation fees, processing fees, management fees, service charges,
collection costs etc. A deposit is also taken as a precautionary measure to
guard against default in payment of installments.
 Features of Consumer Finance

• Mode of payment
In case of individual loans payments are usually collected in advance in the
form of post dated checks. In the case of institutional financing there is an
arrangement for deduction of installments from the salary of the employee
which is remitted to the finance company.

• Credit evaluation
A verification of details furnished by the customer is carried out in order to
ascertain the validity of the statement and the credit standing of customer.

• Convenience
Consumer gets convenient access for many types of loans. While rates and eligibility
vary, a wide range of consumer loans have been developed to serve consumers with
many different backgrounds.