In retail banking, there is a division which deals with giving loans to the consumers. This division is called as consumer finance division. Consumer financing includes variety of loans including credit cards, mortgage loans, education loan, auto loans and consumer durable loans and business loans. These are short term or long term loans provided to meet the cost of acquiring the asset and repaying the loan amount over a period of time, in small equally monthly instalments.
Both businesses and consumers benefit from Consumer finance. For a customer looking to make a significant purchase, getting the purchase financed through one of the consumer finance companies is one of the solutions, when one is short on cash. In the case of business, consumer finance companies help them generate cash/ credit for managing payments and collection while the owner focuses towards business in selling and promoting the product.
It is not only the banks, but many of the non-banking financial companies have also entered this segment of consumer finance. Below are some of the types of consumer finance solutions provided by these companies,
Home Loans or Loan against Property: In this type of loan, loan is given either to purchase a new house, or to get cash against already existing property. In this segment, loan is also provided to renovate the home which is called as top-up loan or home improvement loan.
Auto Loan: As the name suggests, this type of loan is given to buy a new or used vehicle (car or two wheeler) for personal use or may also be given to purchase a vehicle for commercial use.
Education Loan: To finance the studies, mainly higher studies, after high school, either in India or abroad, parents or self, avail this type of loan and pay back the amount once the study is completed. However, during the period of study, interest is charged on the loan amount disbursed.
Credit Cards: Many of the banks provide credit cards to consumer with a pre-defined limit which can be used to purchase any item within the limit. The pre-defined limit is decided by the bank, based upon your previous credit history and income.
Consumer Durable Loans: For purchasing the consumer durables such as TV, Fridge, Laptops etc., banks and NBFC provides short term loans, usually for a period of 1-2 years. An upfront payment is required in some cases, whereas in other, no upfront payment is required.
Loans against Security: This type of loan is provided against the approved shares and/ or Mutual Funds. The loan amount is approximately 60-70% of the market value/ NAV of the scrips. This type of loan is available as “overdraft facility” and the interest is charged only on the amount utilised.
Business Loans: To expand the business or to purchase new equipment, banks provide loans to the companies. This kind of loan is also in the interest of the government as expanding businesses generate jobs. The amount and interest rate depends upon the type of business and expansion plan presented.
Personal Loans: These are non-secured loans given to individual to meet exigencies. These are short term loans for a small amount at a comparatively higher rate of interest.