A retail loan is money that you borrow from a bank to buy goods and services for yourself or your family. Such a loan is issued only to individuals, it cannot be issued to a company.
In addition, there are consumer loans. They can be taken at microfinance organizations (MFIs), credit consumer cooperatives and pawnshops. In fact, this is the same as a loan, but the terms of the loan can be very different from the terms of the credit taken in the banking institution.
What are the types of retail loans?
They can be divided according to several criteria:
- By purpose
Such a credit can be taken both for a specific purchase – targeted, or without specifying upcoming expenses. For example, if you apply for a loan in a furniture or electronics store, the bank transfers the money directly to the seller. This is a targeted loan. If you take a loan and do not report on what it was spent on, it is considered general-purpose loan. Interest rates on targeted loans may be lower, especially if this is an affiliate program of a store and a bank.
- By security
When you apply for a loan for a large amount, the bank usually needs additional guarantees that you will repay it. Collateral for a loan is often a car or other property. If the item is secured by the bank, you can continue to use it, but you cannot sell or damage it. In addition, the bank may ask someting to insure. But interest on secured loans is usually lower than on unsecured ones.
- By terms
The timing of loans and borrowings is usually very different. For MFIs, a short-term loan is considered up to 30 days, for banks, short-term loans – up to a year. The term greatly affects the interest on the loan. Usually the longer the term, the lower the rate. But not always – you need to study the terms of a particular organization.
What conditions must be met to get a loan?
Each bank, MFI or other organization sets its own rules. For example, to get a loan at a pawnshop, it is enough to show your ID and leave something valuable as collateral. For a consumer loan in an MFI, you also usually only need your ID, you can even get it online. The bank, before issuing you a loan, especially for a large amount, can set much more conditions.