Customer Credit

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Consumer CreditConsumer Credit

.Mirdula Madhu.

.MGT0905423.


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Meaning

z The term Consumer Finance refers the activities

involved in granting credit to consumer to enable them

to possess/ own goods meant for every day use

z Also known by several names:

Credit merchandising/ deferred payment/ installment buying/hire

purchase/ pay- out- of income scheme/ easy payment/ credit

buying/ installment credit plan, etc..


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Definition

the term consumer credit refers to a transfer of

wealth, the payment of which is deferred in whole

part, to future, and is liquidated piecemeal or in

successive fractions under a plan agreed upon at

the time of transfer.

-E. R. A. Seligman


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Types of Credit facility available

Revolving Credit

Fixed Credit

Cash Loan

Secured Finance

Unsecured Finance


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Revolving Credit:Revolving Credit:

-similar to bank o/d.

-financier grants credit on a revolving basis.

-credit limit is sanctioned

-eg: Credit Card

Fixed Credit:Fixed Credit:

-financier provides loan for a fixed period of time.

-eg: monthly installment loan, hire purchase

Unsecured Finance:Unsecured Finance:

- no security is offered by the consumer against thecredit granted


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Cash Loan:Cash Loan:

-bank & financial institutions are the main providers

-provides money to customers for personal consumption.

-the lender and seller are different: lender does not have

the responsibility of the seller

Secured Finance:Secured Finance:

-the credit granted is secured by a collateral

-collateral is taken in order to satisfy the debt in the event

of default by the borrower

- collateral may be personal property, real property or

liquid asset


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Sources of Consumer FinanceSources of Consumer Finance

TradersTraders

Commercial BanksCommercial Banks

Cash Credit InstitutionsCash Credit Institutions NBFCsNBFCs

Credit UnionsCredit Unions

MiddlemenMiddlemen

Other sourcesOther sources


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Traders:

Includes sales finance companies, hire purchase & and other financial

institutions

Commercial Banks:

provides direct or indirect finance the consumer durables

Banks lend large sum of money at wholesale rate to commercial or salesfinance companies, and other such intermediaries

Personal loans are also granted without security

Credit Card Institutions:

Arranges credit purchase facility for consumer articles through respective

banks which issue credit card

Enables to buy g & s on credit


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NBFCs:

Also know as small loan companies or licensed lenders or

personal finance companies.

Charges substantially high rate of interest than market rates

Last resort to consumers

Credit Unions:

Association of people whom agree to save their money together

and in turn provide loans to each other at relatively low rates of

interest

Non- profit, deposit- taking, low- cost credit institutions


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Middlemen:

Middlemen, such as dealers of consumer articles, grant

credit to customers as apart of their promotion campaign

This type of arrangement help dealers to maintain a close

relationship with customers

Other Sources:

Savings and Loan Associations

Mutual savings Bank


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Demand for Consumer FinanceDemand for Consumer Finance-- FactorsFactors

Several factors work in favour of making consumer finance a

popular form of finance. Some of the factors are given below:

Increase in consumer disposal income

Enhancement in the real income of consumers

Convenient size of installment payments

Growth in nuclear family leading to spurt in number of house holds

Lower Charges

Down payment and credit contract


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Consumer Finance- Practice in India

A popular form of consumer financing in India is installment

credit

Over- the- counter, one-to-one or walk-in financing credit is

granted directly to individuals or institutional funding agencies

When institutional funding is involved, the financiers

disburses the finance in tranches through the employer or the

cooperative societies. The loan installment is deducted from

the salary of the employees


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THANK YOU. . .

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