Consumer Credt

Consumer Credit

Teaching Thursday week 3 presentation

Debt - Credit - Loan

• Debt - A total amount owed.

• Loan - A form of debt, an agreement where one party lends money to another. The amount of the transaction is given to the consumer in one payment, which has to be repaid in full with interest over a set period of time. Usually have terms counted in years.

• Credit - A more flexible form of debt, in which a consumer is given access to an amount of money which they can use in part or in full. Interest rate is usually higher than a loan, but it’s paid only on the amount used.

What is consumer credit

Consumer credit is a term encompassing all debt used for financing personal consumption or refinancing debts used for that. Usually used to describe unsecured debts.

It falls under one of two categories

1. Instalment credit - defined amount repaid over a set period of time, usually have fixed monthly repayment rate
   • automobile loans
   • home repair/modernization loans
   • personal loans
2. Revolving(noninstalment) credit - open credit, that can be used to the maximum limit repeatedly. Has a higher interest rate and a minimum monthly payment, but can also be repaid in full.
   • credit cards
   • service credit extended by doctors
   • single payment loans

Credit Score

Credit score is a rating of your credit ability, it tells banks and credit companies how likely you are to repay the loans on time.

In USA credit score is very important to your financial life, as it can impact your interest rates, size of loans that you can take out and how likely your loan applications are to be approved.

It’s calculated based the following factors:

• Payment history
• Amounts owed
• Length of credit history
• Types of credit
• New credit

Credit score is best known as an American thing, but other countries like Germany or Japan use it as well. In Poland however there is no unified credit scoring system like the one is US. The only institution fulfilling similar purpose is Biuro Informacji Kredytowej, which creates a credit score encompassing credit/mortgage/loan history. Credit card information is not as important in Poland, mainly because cards in use are mainly direct debit.

When trying to get a loan or a mortgage in Poland, each bank or institution has their own procedures for assessing one’s credibility.

Important factors of credit ability in Poland:

• Monthly salary
• Monthly cost of living
• Current debt amount
• Age
• Martial status
• Education
• Savings and properties
• Job position

Consumer credit in economy

The monthly use of consumer credit is an indicator of economic growth.
When consumers are confident in their future ability to repay debts in time, they are willing to borrow and the amount of monthly consumer credit rises.
If they are concerned about their predictable financial ability, they will cut down on their spending.

https://tradingeconomics.com/euro-area/consumer-credit

Sources

• https://www.investopedia.com/terms/c/consumercredit.asp
• https://www.investopedia.com/terms/c/credit_score.asp
• https://www.britannica.com/money/consumer-credit
• https://www.skillsyouneed.com/rhubarb/understanding-debt.html
• https://www.bancosantander.es/en/faqs/particulares/prestamos/diferencias-prestamo-credito
• https://www.bik.pl/poradnik-bik/czym-jest-zdolnosc-kredytowa