Like any other credit, consumer credit involves risks for both the lender and the borrower. Consumer credit is one of the most popular types of loan and is generally available for up to $ 10,000 for up to 5 years. Because it is important to distinguish and understand the main credit risks associated with this type of loan, let’s look at consumer credit risk from both the lenders ‘and customers’ perspective.
Risks to the lender
In reality, the lender’s main risks, which usually lead to the adoption of a loan interest rate, are quite different:
- Non -repayment of credit – When lending a loan, banks take the risk that it will not be repaid. If the credit is not returned, it is not always possible to get it back in court. No matter how cynical it may sound, the risk is, for example, the death of the borrower, not just hiding from the debt. However, this type of natural process is governed by the law of succession, which allows acceptance of an inheritance only if it is accompanied by a credit obligation.
- Changes in bank rates and global economic processes – banks are just as people are experiencing economic change. If, for a good period of time, a bank lends money at low interest rates, at a time when inflation is high, it may lose out because the value of money falls more than the interest paid. Banks are fighting against this by incorporating “rate review” rights into contracts. This affects both non-bank lenders and banks.
Risks to the borrower
The testimony that the borrower had more risks than the bank was that the banks escaped the crisis by tightening their belts and stopping some services, but in the meantime people were divorcing their homes and their possessions and money. The borrower has more risks because people’s lives are more volatile than those of institutions, but the main and only reason why taking a loan is risky is because of the unpredictability of their life, and more specifically their material situation.
That is, taking out a consumer loan will have to pay it back even if you lose your job, have a baby, raise rent, and so on. Borrowers, like banks, are affected by international economic processes, and in bad times lenders can renegotiate rates if contractually. If you have problems repaying your loan, you should always contact your lender.
Summary of Consumer Lending Risks
Although each loan carries risks, some of them can, if not be avoided, at least be foreseen. People will cover against contingencies in different ways, but there is one security against financial stings – savings, savings and again savings. When the unpredictability of life is already on your head, it is best to have a pole to lean on and lean on. For example, you can protect yourself from losing your job by simply saving up money so that you can save a few months and cover your loan payments until you find a new job.