The hike in petroleum prices throughout the world has increased the prices of every commodity, whether the commodity is food, machinery, or even clothes. To make the situation even worse, the widespread of the pandemic and its impact on the economy has completely broken the back of every ordinary person out there. As if things were not already bad enough, millions of people lost their jobs worldwide and unfortunately were left completely hopeless.
The United States along with many other first world countries offered relief programs to their citizens but the world has been in lock down for almost two years. This does not help the case of people who perform low-wage jobs or were recently let go of their jobs.
In desperate times, people tend to look towards desperate measures. One such tactic is to apply for a financial loan. When things get tough and there are no other options, loans are the best options that a person can consider at times of need. There are several different types of loans. Each one is categorized on the basis of different factors. Some are known and managed through the number of returns that are associated with the loans while others depend upon the time limit a person has to return the amount back to the lender.
A term called consumer finance account is commonly used in the world of loans and finances. This term plays a vital role in the administration of loans and the payback methods involved with this loan are quite unique as well. Consumer finance accounts may seem like a very technical concept but it is actually quite simple. In this article we will have a detailed look at what is a consumer finance account and how it plays a role in the world of loans and financial support provided by various institutions.
What is a Consumer Finance Account?
The concept of a consumer finance account is quite vast. There are multiple factors surrounding it and in order to understand everything, a person must have a grasp on basic financial knowledge. This is why let us first understand the various terms that will go handy in understanding the term consumer finance account.
This is the most important term in this whole scenario. Consumer finance stands for the amount of loan that is provided by a lender to a customer so that they can purchase any good or service. Unlike other loans, they are not specific for any kind of spending. By this, it is implied that every kind of purchase can be made through this loan. If you want to go on a holiday and need the amount, you can use the amount from the loan to pay for it. Or for example, if you want to buy a car, you can apply for customer finance in various institutions and pay for the car without any hindrances.
The best thing about taking help from the customer finance is that you do not have to pay the loan amount completely in one go. Instead, you can pay the total amount for the loan in various steps. The payment is made over time and in different amounts. Depending upon the bank or financial institution that you are associated with, the payment plan is variable and can be spread out over several months or even years. It all depends on the choice of your payment path.
The concept of consumer financing goes both ways. This statement means that a customer is eligible to receive the services of consumer financing while at the same, a business is more than eligible to offer their customers a support in terms of consumer financing. Many retailers are advised to offer customer financing to their customers, especially if they are looking to build a loyal customer base with their business. Furthermore, if a business offers such a deal then at times, many dormant buyers of the company products or services become active once again. This enhances the sales of the company.
All of this information related to consumer finance seems like an amazing offer. And you must be wondering, why doesn’t everyone benefit from it? Well, the truth is that while there are many benefits and perks to the concept of consumer finance, there are several drawbacks related to it as well. As we go into the details, you will get to understand why consumer finance is not always such a great idea.
Definition of Consumer Finance Account?
Now that you have a clear picture of what consumer finance stands for, it is time to look into the consumer finance account.
A consumer finance account is a loan or borrowing account that a person holds in their name to make payments to different businesses. This means that for example, if you want to buy a television but do not have the sufficient funds to afford it, you can open up a consumer finance account. Through this account, the bank or any other financial service will provide you with enough money to purchase the television on the spot.
You can slowly submit all the loan back into the account on an installment package that is already discussed and agreed upon by both of the parties i.e., the bank or financial institution that is lending the money and the receiver of the loan.
The only thing that may seem like a catch to some people is the fact that this amount is not interest free. There is an interest rate that is charged along with the loan. This means that if you took out a loan for $100 on your consumer finance account, you may have to pay $110 back to the institution. The additional $10 is the interest rate. All these details are discussed beforehand between both parties.
Things are done very seriously because contracts are drawn and each party has to provide their signatures. Failure to pay the interest rate and loan on the decided schedule can lead to some serious consequences. Apart from hefty fines, legal measures can also be taken against the lender.
What are the Different Types of Consumer Finances?
As already discussed before, consumer finances is a very broad term. There are several different types of consumer finances that can fit into this situation. Here are some of them:
You might be surprised to learn this but mortgage loans fall in the category of consumer finances. We all know that a person who has a mortgage has to pay it back bit by bit to the back or financial institution over a specific period of time. The finances of a house purchase are easily managed through a mortgage. Because it is a loan that a bank or any other financial institution provides to its customers with an interest rate, the mortgage falls under the umbrella of consumer finances.
2. Credit Cards
There is always an interest rate that a person has to pay whenever they purchase something from their credit card. Sure, the workings of the whole credit card financing might be different but ultimately, it is a loan with an interest value attached to it, making credit cards another major form of consumer finances.
3. Student Loans
Almost every middle-class child has to take a student loan in order to pay the tuition to their college. These college loans, despite popular belief, are not interest free. Every student has to pick a payment plan that they need to follow for as long as the loan is not completely repaid. This is why student loans are also a part of the consumer finances.
4. Auto Loans
Ever taken out a loan to buy a car for yourself. If yes, then you have also taken or used the consumer finance account. As discussed above, consumer finances can be used to purchase every commodity (even a car). There is also an interest rate attached with the loan repayment of the car.
5. Personal Loans
These are some of the loans that people take out to buy electric appliances or any other major commodity in life that they cannot pay instantly for. They can be consumed for medical purposes as well.
6. Payday Loans
These are the most dangerous kinds of loans that are out there in the market. This is because payday loans have a very high interest rate. Many people have no other option but to take out this kind of loan at the hour of emergency. But their return becomes increasingly difficult because as more time passes, the interest rate keeps on increasing. Sure, the amount comes through at the time of need but when returning such amounts, people completely lose a grip on their finances.
The loop of taking out payday loans is quite strong because of its high value of return interest. Financial advisors never recommend taking out any payday loan because it is always a loss in the longer run. The cycle of debt is vicious for the people who become trapped in the payday loans.
Advantages of Consumer Finances
Here are some of the various advantages that are associated with consumer finances.
- You can easily get the cash from the financial institution without having to wait for a long time (in most cases). This can vary when it comes to mortgage and student loans. But overall, the whole process is quite simple and achievable within a short span of time.
- Credit history does not play a very major role when it comes to most types of consumer finances. But depending on the type of consumer finance that you are requesting to take out, history can be important.
- You have the cash immediately for any kind of emergency situation.
- If you are interested in a product or service, you do not have to wait for a long time to get the amount first and then make the purchase later. You can just accomplish this task instantly.
Disadvantages of Consumer Finances
Here is a list of reasons why one should refrain and do their absolute best to stay away from consumer finance loans.
- The terms and conditions need to be understood thoroughly before agreeing to anything. This is because they play a vital role in the future. Any misunderstandings can cause major implications in the future.
- The consumer finances are designed in such a way that it draws a person into the vicious circle of debt. This is because you buy something upfront and then at the end of the month or on the day you get your salary, you have to pay a large chunk of money to the lender. Otherwise, you will be fined a large amount and interest rates can increase by the day.
- Consumer finances that are similar to payday loans are the worst kind of loans that a person can take. They immediately take all of your money from the account as soon as you get your salary. Financial planning or budgeting becomes extremely complicated when it comes to consumer finances.
Many people who are new to the world are confused about what a consumer finance account is and how the whole process works. In this blog, we have discussed every aspect of the finance account. It is important to remember that consumer finance accounts are not the best financial solution. You should never rely on them completely because they are more or less a trap. They always come with some form of liability and interest rate. Consumer finances are complex matters that everyone must be careful with while taking them out.
In case of emergency situations, yes, they are a viable solution but people should not make it a habit to take out consumer finances all the time. And even if you do take out the loan, make sure that you understand everything that is attached with the loan i.e., the interest rate, the terms and conditions, and any other hidden charges. This way the chances of you falling into a blunder or trap is reduced. Also, make sure to make the return payments on time to avoid further complications.