Consumer credit: what it is and how it works
Consumer credit is a loan that is granted to individuals and families to allow them to purchase goods, services or pay in installments. They are short term loans.
In Italy, only banks and authorized intermediaries can provide this type of personal loan. They can be granted in the form of:
- targeted and non-targeted personal loans;
- loans with the assignment of one-fifth of the salary or pension;
- debt consolidation;
- credit cards;
- revolving cards.
The legislation that regulates the granting of the aforementioned loans and defines consumer rights is contained in the Consumer Code, introduced by Legislative Decree no. 206/2005.
The characteristics of consumer credit
Once consumer credit is granted, the financed money is repaid gradually, plus the interest agreed by the parties. In some special cases, the borrower can obtain a zero-rate loan: this means that the TAN applied to the loan is zero.
A zero-interest loan could also have a zero APR, which indicates that the borrower is not required to pay any type of expense or commission, or higher than zero.
Those who obtain the loan undertake to repay the capital within a predetermined period through the payment of periodic installments, generally on a monthly basis and with a constant amount.
In some cases, there is a pre-amortization period, that is, an initial phase in which it is not necessary to pay the installments. Think of the loans with payment of the first installment one year after the purchase.
In consumer credit, the purchase contract for the goods and/or services and the loan agreement are separate, in fact, the first concerns the customer and the seller, the second the consumer and the bank.
In the event that problems should arise with the shopkeeper, for example, defects in the goods purchased, the payment of the installment must not be stopped. This would reflect on the customer’s creditworthiness.
Finally, consumer credit does not include collateral. However, in some specific cases, for example for clients with fixed-term employment contracts, the bank may request personal guarantees.
Consumer credit: the importance of transparency
For some years, thanks to the Consumer Credit Law No. 141/2010, which came into force on June 1, 2011, changes have been introduced, such as:
- the APR must include all the expenses related to the loan: interest, preliminary costs, the opening of the credit file, expenses for the collection of repayments and the collection of installments, expenses for insurance etc;
- the IEBCC form (or SECCI form), Basic European Information on Credit to Consumers, which the bank must obligatorily deliver to the customer before signing the contract. Inside are all the loan conditions offered to the applicant;
- the consumer has the possibility to withdraw from the contract within 14 days of the stipulation, without having to give explanations or pay penalties. In the event that the money has been disbursed, the consumer has 30 days to return the sum and interest accrued.