Consumer Finance

1. MEANING OF CONSUMER
FINANCE

It refers to the raising of finance by individuals for

meeting their personal expenditure or for the
acquisition of durable consumer goods and for the
purchase /creation of an assets.

Details about the Consumer Finance

This is directly related with the money lending to the people or the
consumers. In United States it refers to the branch that is lending the
amount which is actually very low than the perfect credit. It is the part of
retail banking. One of the best ways to get the unsecured loans is
through the consumer finance. The term includes the following
mentioned activities and these are as follows:
• Loans
• Indirect Finance
Loan shark is different than the consumer finance; it provides the high
interest rate on the loan which is higher than the other companies. This
concept is very wise for those who are not involved in the financial
markets. So this thing has helped many people in supporting their
businesses. Through consumer financing one can easily get the loans and
can meet the demands and the desires. There are many organizations
working for the consumers to gain stability in the financial matters. The
consumer credit should be in a good state and it is a very good point to
see the history of the consumer regarding the financial matters.
Consumer credit counseling is very essential on the part of the
organization so that this thing improves to decrease the debt status and
also it can increase the financial stability to its peak. ACCC is the
organization which is giving the knowledge about the consumer debt and
offers the way to the consumer to again cope the stability. The ACCC

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organization deals with large number of consumers and provides them

the knowledge and information about the utilization of the credit, buying
of a house etc.

ACCC stands for "American consumer credit counseling". This

organization has the expert and professional employees which are giving
different services to the people. This organization is providing the ways
to create a financial balance between the demands and the budget. It
provides the information and knowledge which will enhances the financial
skills and expertise of the consumer. This organization is basically a tool
for a future which would free of debt so every one should get the
counseling from the organization. It analyzes the financial situations of
the consumers and maintains their budgets and this thing will increase
the financial stability of the consumer. ACCC is one of the top
organizations providing the consumer credit service in the best way.

There is a lot of information consumer consolidation present in the

financial internet sites. Consumer consolidation is the best way to
decrease the tension, because it helps the consumer to join all the loans
into one and can pay back this one loan in one time, so thing makes
everything simple for the consumer, and the one loan would be very easy
for the consumer to repay. Consumer credit counseling service is very
essential for the consumers because it gives good advices for the
consumers regarding the financial matters. There are many organizations
in the world which are providing consumer credit services which are
helpful for the financial stability. Financial stability is very important not
only for the businesses but also for the consumers. The businesses and
as well as the consumers need the stability regarding the financial
matters because without the stability no one could be very innovative in
the longer run. Consumer credit consolidation is very helpful in making
the loan repayments very easy for the consumer. Every one needs the
loan now days to meet the demands of the people and the families, and
obviously the stranger don't want to lend the amount to you so the
Consumer credit report is enough for you to give the lender to have the
loan. Consumer credit report contains all the information about the loans
which you already using, and the status of the credit cards, this report
also shows the unpaid bills of any card, so on the basis of the report the
lender can give you the loan very easily.

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Consumer Finance

This report is sometimes the basis for the consumer loans. If the report
shows the satisfactory status then you would be easily getting the
consumer loan. Consumer reporting agency is the agency that maintains
the database of the credit activities of the consumer and then goes for
selling it. Consumer credit agency is basically providing the information
about credit activities by charging a little fee. Consumer lending is not an
easy task, it is very risky in fact every thing is risky in which the money
is involved.

Every one can not see the credit report of yours only the following people
can see on request and these are as follows:
• The lender who is going to lend money to you or have already
given you.
• Employers can see who wants to employ you.
• Employers can see who wants it for the retention purposes.
• The insurers can see it.
• The agencies related with the government can see for the
government benefits.
• The third party can see it if you will sign the authority letter.
Following are the information present in the reports:
• Initial personal information
• Information about the credit
• Information about the public record
• Inquiries
The banks should provide the best consumer financing information to
the consumers because this thing will reduce the future hassle on the
part of the consumer. The bank officers should be equipped with all
the information related to the loans, taking loan is the day to day
activity on the part of the borrower because the salaried person is not
able to meet the demands easily; he or she has to go for loans for
meeting the demands. One should keep the credit history very good
for getting loans for the future purposes. Every one wants to have

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Consumer Finance

loan for paying the bills, education purposes, business purposes etc,
and one can only get the loan with the appropriate interest rate only
with the good credit history.

1. IMPORTANT ASPECTS

• consumer Parties to the transactions

• Modes of finance
• Procedure for granting
• Terms of financing
• Purpose of raising finance
• Benefits of consumer finance

1.1 PARTIES TO THE TRANSACTION

• In A Bipartite Arrangement
A) borrower/Consumer
B) dealer Cum Financer

• In A Tripartite Arrangement
A) Customer/Borrower
B) Dealer/Sellers
C) financer(may Be A Bank Or Non Banking Company)

Bank

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Consumer Finance

An institution that provides a great variety of financial services. At their

most basic, banks hold money on behalf of customers, which is payable
to the customer on demand, either by appearing at the bank for a
withdrawal or by writing a check to a third party. Banks use the money
they hold to finance loans, which they make to businesses and individuals
to pay for operations, mortgages, education expenses, and any number of
other things. Many banks also perform other services for a fee; for
instance they offer certified checks to customers guaranteeing payment to
third parties. In some countries they may provide investment and
insurance services. With the exception of Islamic banks, they pay interest
on deposits and receive interest on their loans. Banks are regulated by
the laws and central banks of their home countries; normally they must
receive a charter to engage in business. Banks are usually organized as
corporations.

Lender

Businesses that provide loans to others.

A person or organization that makes a loan. That is, a lender gives money
to a borrower with the expectation of repayment in a timely manner,
almost always with interest.
One who advances money to another in the expectation of receiving
repayment of the money plus a fee for the use of the money, called
interest.

1.2 MODES OF CONSUMER FINANCE

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Consumer Finance

• HIRE PURCHASE
• INSTALMENT SYSTEM
• OVERDRAFT
• CREDIT LOANS

2.2.1 HIRE PURCHASE

• Hire purchase means a transaction where goods are purchased

and sold on the terms that
1) payment will be in installment
2) possession of goods is given immediately
3) ownership remains with sellers till the last installment
paid by
buyer
4) the seller can repossess the good in case of any default
5) each installment will be treaed as hire charges till the
last
Installment

2.2.2 RIGHTS OF HIRER

• The hiree (vendor) can not terminate the hire purchase

agreement
The right to repossess the goods
• The hirer has a right of receiving a statement
• Excess payment made by the hirer will be returned by the
owner to
Him

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Consumer Finance

2.2.3 Installment system under hire

Purchase

• It may be of two types

1) Conditional sale
2) Pledge or hypothecation

2.2.4 Overdraft/demand loans

• Under an overdraft interest is charged on the amount actually

utilized by individual customer. overdraft facility is provided
against
the security of life insurance policies, fixed deposits, govt.
securities
etc.

1) Loan against equitable mortgage of immovable

property:
.
2) Loan against NSC/IVP/KVP:

3) LOANS AGAINST LIFE INSURANCE POLICIES:

In this loan is advanced either in form of demand loans or

overdraft as 80% to 95% of the surrender value to be
ascertained from insurance company. the policy has to be
assigned to the bank at the time of taking credit against
policy.the interest rates
will vary between 11% to 12% p.a.

4)Loan against RBI relief bonds

Banks and non banking finance companies also provide

loans against the security of RBI relief bonds to the
individual in order to meet their personal/business needs
and contingencies. the loan is provided in form of term

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Consumer Finance

loans or overdraft. The term loan agreement may provide

for the submission of:

1) delivery letter
2) transfer deed
3) endorsed bonds
4) depository participant note

• Loan against shares and debentures:

finance is provided to the individual of high credit standing

against security of fully paid shares and debentures held
by them, in their own name, kept in physical or
dematerialized form.

2.3 Procedure for granting finance

A. Pre sanction stage

1. collecting credit information
2. receiving of application form
3. analyzing customer’s credit worthiness
4. accepting/rejecting applications
5. entering into a contract

B. Post sanction stage

a) submission of documents
b) payment of credit/finance
c) payment of installments

2.4 Terms of financing

These include the following:

1. Amount of loan/credit

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2. Margin requirements
3. Security
4. Period of finance
5. Rate of interest
6. Fees and charges
7. Mode of payment
8. documentation
2.5 Purpose of Raising Finance

Housing Finance

It refers to providing finance to the individual or group of

individuals for the purchase, construction or related
activities of house/flat etc. The housing loan is a type of
instalment credit which forms the
largest single source of housing finance.

• The housing loan can be availed for following

purposes:-

• Construction
• Extension
• Purchase
• Combined loan for purchase of plot and construction
• Acquired house through cooperative housing society
Rate of Interest
• Fixed rate of interest loan
• Floating or variable rate of interest loan

Charges & Fees payable

• Processing fees
• Search report charges by the advocate at the time of
sanction
• Insurance charges
• Fine for non-payment of late payment of instalments
Security for the loan
• Primary security

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Consumer Finance

• Collateral security
• Interim security

Institutions providing housing

finance
• IDBI
• HDFC
• ICICI
• SBI
• LIC Housing Finance
• Tata Home Finance

Parameters of the best

house loan

• Lower interest rate

• Income tax incentive
• Longest tenure
• Lowest margin
• Complete doorstep service
• no pre-payment charges
• Discount on processing fee
• Concession in credit card/ ATM card fees

Educational Loans

The prime aim is to make careers happen. The no. of

students seeking admission to professional courses is
multiplying every year. If one has the ambition and drive,
the banks will take care of finances involved.

Eligibility Criteria

• Should be an Indian national

• Belongs to the age group of 16-40 years

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Consumer Finance

• Has secured admission in a

Professional/technical course,

• foreign university/institution
• Should have secured minimum 60% marks in the
previous qualifying examination

Objectives of finance

• To finance all fees

• To meet expenses
• To provide financial assistance
• To cover course fee, hostel and mess charges

Processing fees

SBI, CBI, BOB – do not charge any fees HSBC and Bank of
Punjab – 1% of the loan

Repayment Period

5 -7 years after commencement of

Repayment

Automobile Finance

Under the banks auto loan scheme there is a vehicle loan

for every class i.e. 2 wheeler’s loan, 2nd hand car loans,
new car loan. The market for auto loans is large and lot of
opportunity exists there for the banks and other finance
companies who by adopting customer friendly policies and
mass advertising can surely make auto loan scheme a
success.

Eligibility

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Consumer Finance

• Permanent employees of govt.,

Public/private sector with minimum of 3years service.
• Professionals and self employed such as doctors, CASs,
MBAs etc.
• Persons engaged in agricultural and allied activities.

Purpose

Auto loans are extended for the purchase of vehicle both

for personal and
professional use.

Type of loan

Finance is provided in form of term loans extending for a

period from 1 to 5 years.

Rate of interest

Varies from bank to bank Insurance

A insurance policy is taken for market value or 10% above

the loan amount whichever is higher
.

Processing Charges

Most of the banks do not charge any processing fee, or Rs.

250 to Rs. 500 may be collected as one time fee from the
customers.

Personal Loans

General purpose loans are advanced to the individual to meet

personal expenses. Thus, with such easy finance facility, a
consumer can buy whatever he has in mind.

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Consumer Finance

Eligibility Criteria

• Salaried employees
• Self employed professionals such as Doctors, CAs, MBAs, etc.

Loan amount

Minimum – Rs.25000
Maximum – Rs. 10,00,000

Other features

• No security or guarantor required

• Repayment period 12 to 48 months
• Speedy approval

Finance to meet Festival

Expenses
The lower or middle income group of individuals who cannot
satisfy the requirements of the personal loan scheme seek
financial assistance from the banks for short duration to meet
expenditure relating to a festival. The bank may charge nominal
fee of Rs.100 per application.

Eligibility Criteria

• Employees of govt. / Profit making Public / institutions. Etc.

with a minimum of 2 years service.
• Self employed persons
• Persons having regular source of income from verifiable
sources like pension and interest from govt. securities etc.
Holiday Finance

Today, consumer who finds himself unable to meet the cost of

package gets ready to accept the option. For ex, SOTC’s
European tour package is priced at over Rs.76,000.

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Consumer Finance

Finance for Medical

Treatment

It is very difficult for individuals especially the salaried class to

arrange funds at short notice to make payments to hospitals.
Banks extend loans to meet such exigencies. Loans are available
to all such patients who are suffering from diseases where
mortality probability is low and the patient emerges as a
healthier person after treatment.

2.6 Benefits of Consumer Finance

• Rising standard of living

• Forced savings
• Help consumes meet emergencies
• Increase in demand for physical goods

Profit

Revenue minus cost. The amount one makes on a transaction.

A company's total revenue less its operating expenses, interest paid,
depreciation, and taxes. For example, suppose a widget manufacturer
earns $1,000,000 in total revenue. The widgets cost $200,000 to make
and his administrative and payroll expenses total $250,000. He also must
subtract $50,000 in depreciation on his widget manufacturing equipment
and pay $200,000 in taxes. His net income is stated as: $1,000,000 -
$200,000 - $250,000 - $50,000 - $200,000 = $300,000.
Profit, which is also called net income or earnings, is the money a
business has left after it pays its operating expenses, taxes, and other
current bills.
When you invest, profit is the amount you make when you sell an asset
for a higher price than you paid for it. For example, if you buy a stock at

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$20 a share and sell it at $30 a share, your profit is $10 a share minus
sales commission and capital gains tax if any.
Interest

The price paid for borrowing money. It is expressed as a percentage rate

over a period of time and reflects the rate of exchange of present
consumption for future consumption. Also, a share or title in property.

1. Payment for the use of borrowed money.

2. An investor's equity in a business.

Money that is paid in exchange for borrowing or using another person?s

or organization's money. Interest is calculated as a percentage of the
money borrowed. There are two kinds of interest, simple interest and
compound interest. In simple interest, the interest is calculated only over
the original principal amount. For example, if one borrows $1000 at 3%
interest, the interest is $30 (3% of $1000) each time it is calculated. In
compound interest, interest previously paid is included in the calculation
of future interest. For example, with the above loan, interest paid in the
first month is $30 (3% of $1000), in the second month it is $30.90 (3% of
$1030), and so forth. Compound interest is more common because it
yields more for the lender.
Interest is what you pay to borrow money using a loan, credit card, or line
of credit. It is calculated at either a fixed or variable rate that's expressed
as a percentage of the amount you borrow, pegged to a specific time
period.
For example, you may pay 1.2% interest monthly on the unpaid balance
of your credit card.
Interest also refers to the income, figured as a percentage of principal,
that you're paid for purchasing a bond, keeping money in a bank account,
or making other interest-paying investments.
If it is simple interest, earnings are figured on the principal. If it is
compound interest, the earnings are added to the principal to form a new
base on which future income is calculated.
Interest is also a share or right in a property or asset. For example, if you
are half-owner of a vacation home, you have a 50% interest.
Sums paid or earned for the use of money.

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