Question

In: Finance

Why is the level of consumer credit of concern to policymakers? What loans are included in...

Why is the level of consumer credit of concern to policymakers?

What loans are included in Consumer Credit?

Solutions

Expert Solution

Credit – means Buy Now Pay Later
Consumer Credit – Credit for Personal Use

In general Consumer Credit refers to, short- and intermediate-term loans used to finance the purchase of commodities or services for personal consumption or to refinance debts incurred for such purposes. It is not usually used to describe investment in Property like house etc as it would require secured mortgage loans. The most common example is the Credit Card.

Why is the level of consumer credit of concern to policymakers?
•   The level of Consumer Credit is one the most important factors to be considered by the policymakers while granting the credit to any person or fixing the amount of interest or late fees to be charged from that person.
•   A consumer who is good in repaying his debts timely and has no default history is preferred to be given loan over person who always pays his debts after due date. The Income generation capacity, security of income for reasonable period or for the loan duration is also considered.
•   The credit score of a person factors in different aspects like Payment History, Amount of Debt, Credit History. You can remember the 4 C’s of Credit – Character, Collateral, Credit Score and Capacity.
•   Policymakers have to factor whether the loan given will be recovered along with the probabilities of it turning into a bad loan. Thus, person who has a low level of Consumer Credit score will find it more difficult to get the loan and will have to shell out extra premium for these services.


What loans are included in Consumer Credit?
The Consumer Credit is primarily of 2 types –
1.   Revolving Credit - The credit card is the best example of revolving credit. It is basically an arrangement which allows the loan amount to be withdrawn, repaid and redrawn until the arrangement is in place. Supposing you have a credit with limit of say 10,000 $ then you can withdraw any amount at any specific time from it and can repay it again to reset it back to 10,000 $ at any time. However, since there has to be an arrangement for having a credit card with a credit giving agency therefore it also includes certain time frames to pay back the amount to avoid interest and late payment charges.
2.   Instalment Credit - Instalment credit is used for a specific purpose and is issued at a defined amount for a set period of time. Payments are usually made monthly/quarterly in equal instalments. Instalment credit is used for purchases such as of major appliances, cars, and furniture. It can be either Secured or Unsecured credit meaning that can be with or without any security.


Related Solutions

Why is poverty an issue of concern to policymakers from an economics perspective?
Why is poverty an issue of concern to policymakers from an economics perspective?
What is a zero unemployment rate not a goal of policymakers? Explain the level of unemployment...
What is a zero unemployment rate not a goal of policymakers? Explain the level of unemployment that the economy experiences in "normal times"? Why does that unemployment occur?
Explain why Car loans(Auto Loans), Mortgage, and Credit Card are so different in terms of interest...
Explain why Car loans(Auto Loans), Mortgage, and Credit Card are so different in terms of interest offering based on the formula components, such as Risk Free Rate, Inflation Premium, Default Risk Premium, Maturity Risk Premium and Liquidity Premium. You need to relate those components with the length/duration of lending period, and types of collateral, like housing for Mortgage, vehicle for Auto loans and none for credit card. Use your own thought, opinion and other information you found online.
Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 14.7...
Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 14.7 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? (use 365 days for the year and round percentage to 2 decimal places)
what changes are supposed to be included in a credit policy ?
what changes are supposed to be included in a credit policy ?
‘Cyclical unemployment is a major concern for macroeconomics policymakers’. Do you agree or disagree with this...
‘Cyclical unemployment is a major concern for macroeconomics policymakers’. Do you agree or disagree with this statement? Discuss this statement using concepts relating to unemployment. (2.5 marks, approximately 50-80 words) Part B What is the relationship between the money supply curve and interest rate? Explain the effect of an increase in money supply on the money market equilibrium (Interest rate and Quantity).
What are the essential differences among working capital loans, open credit lines, asset-based loans, term loans,...
What are the essential differences among working capital loans, open credit lines, asset-based loans, term loans, revolving credit lines, interim financing, project loans, and acquisition loans? Support your answer with relevant example drawn from the industry, or research literature from academia.(Your answer for each question should be between 500 to 700 words)
What are the essential differences among working capital loans, open credit lines, asset-based loans, term loans,...
What are the essential differences among working capital loans, open credit lines, asset-based loans, term loans, revolving credit lines, interim financing, project loans, and acquisition loans? Support your answer with relevant example drawn from the industry, or research literature from academia. Your answer for question should be between 500 to 700 words.
1. An example of open-end credit is a.automobile loans b.installment sales credit c.mortgage loans d.revolving check...
1. An example of open-end credit is a.automobile loans b.installment sales credit c.mortgage loans d.revolving check credit 11. Which of the following is an example of a conventional mortgage? a. an FHA mortgage b. a buy down c. a fixed rate mortgage d. a shared appreciation mortgage e. a home equity loan 13. Health insurance typically includes a. deductibles b. out-of-pocket limits c. co-payments d. all of the above 15. Disability is defined as a. unable to do regular work...
what is payday loans? are they always ethical? why or why not? explain. what is usury?
what is payday loans? are they always ethical? why or why not? explain. what is usury?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT