Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Prepared by
Prof. Rahul Mailcontractor
Assistant Professor,
KLSs Institute of Management Education and Research,
Belgaum
Definition
The term consumer finance refers to the activities
involved in granting credit to consumers to enable
them to possess goods meant for everyday use.
Business procedure through which the consumers
purchase semi durable and durable goods other than
real estate in order to obtain a series of payments
extending over a period of 3 months to 5 yrs.
Products covered
Consumers financing covers a wide range of
products such as cars, Televisions, washing
machines, refrigerators, Air conditioners,
computers etc. The products covered possess
some distinct feature such as durability,
sustainability, salability and serviceability etc.
Terms of Finance
Eligibility : The basic eligibility for consumer finance is the income of the
individual customer and the nature of employment. The EMIs 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.
Rate of interest : the effective rate of consumer finance is much higher than
the rates applicable to business finance. This is because the loans are
granted based on the personal integrity of the customer. The effective
interest varies between 20% and 30%. Finance companies use different
methods of disclosing interest rates.
Advantages of Consumer
Credit(Finance)
Enjoying position : An important benefit of consumer credit is
that it allows people to enjoy possession of goods without
having to pay for them immediately.
Saving : consumer credit allows for a mechanism of
compulsory saving this induces people to use their income
wisely and promotes thrift among people.
Convenient mode : Consumer credit offers a convenient mode
of acquiring consumer durables.
Meeting emergency : Consumer credit is useful in meeting
emergencies such as illness, accident and death which involve
unexpected expenses.
Disadvantages of Consumer
Finance
Thoughtless buying : consumer credit being attractive
tempts people to buy goods indiscriminately even if
they are not needed.
Insolvency : Credit forces people to mortgage a
substantial portion of their fixed future income which
may lead to insolvency and bad debts.
Costly Credit : Consumer credit with its benefit of
convenient buying brings with it severe consequence
of costliness of credit because the effective rate of
interest is much higher than on paper.