Do you want to know how consumer credit works? Then this article will certainly bring you all the answers you want. Take out a private loan is a major commitment over a more or less long period. It is therefore crucial to understand how it works before choosing your private credit solution. In this new article, Lica shares its knowledge to help consumers make the right choices.
Consumer credit is above all mathematics...
If just reading the title made your heart beat faster or your throat constricted, then skip the next few lines! They do not have much importance except the interest to amuse the "mathematicians".
In fact, the operation of a consumer credit could be summed up in a single mathematical formula which would be the following:
Not a very sexy formula! However, it is with this that lenders establish the amount of the monthly payment that you should repay when concluding a consumer loan. Here are the details of this formula:
- m = the monthly payment
- C = borrowed capital
- t = the borrowing rate in %
- N = the duration of the loan in months
Now that you know the calculation method, you have two options for simulating the cost of your credit private credit. Take a sheet, a pencil, your calculator and arm yourself with patience or use our simulator at the following link:
The financial aspect is central in the calculation of a consumer credit. However, before determining the amount of a monthly installment, a lender will need to determine a long-term risk management strategy. This is what we will see in the next chapter.
Risk management
If they wish to be profitable, lending institutions must plan and manage a long-term approach to risk. Lending funds through consumer credit does present risks. These must be contained as much as possible to be profitable in the long term! To achieve this, a lending institution therefore determines its business plan according to various key processes. These processes will allow it to guarantee a certain profitability. This, despite losses on part of the consumer loans granted. Here are the top 3 risk management processes detailed in this article.
? To obtain consumer credit you must have good “scoring”
Not far from the American system, to obtain consumer credit, you have to be known as a quality borrower. In other words, if you are used to credits and a good payer, then your scoring will be very high. On the contrary, if you have never made credit, your scoring will be low. With a good rating, as a borrower you will therefore obtain advantageous conditions. But that's not all, a praetor establishment will establish a checklist which will make it possible to precisely determine the scoring of each of these borrowers. Here are the different factors that can influence your score.
- Your consumer credit experience
- Your personal situation as a borrower (family, profession, housing, etc.)
- The ability to repay your loan according to your income and your financial situation
To determine the scoring of a borrower, it is therefore crucial to know his situation well. This is why Lica takes the necessary time to prepare a quality file with each of its customers. A legible and favorable file, will increase your chances to obtain a consumer credit with good conditions.
? Evidence of ability to borrow
A lending institution's greatest fear is losing its funds. Indeed, if a borrower can no longer repay his private credit, there is a good chance that the creditor will be obliged to claim his due by making a prosecution request. In this configuration, it is not uncommon for the debtor (the borrower) to refuse to recognize his obligation to repay his consumer credit. Thus, the borrower will file an opposition and it is the debtor (the lending institution) who will have to prove his right to be reimbursed. To achieve this, he will submit to the judge a complete file in which all the elements will demonstrate that he has granted consumer credit by scrupulously checking his client's ability to borrow. Generally, the following documents will serve as proof that a detailed analysis of the borrower's situation has been carried out.
- Proof of income such as salary slips, tax notices or bank account statements
- The establishment of a realistic and documented budget according to the situation at the time of lending the funds
- The identification and classification of the borrower according to the usual standards of the profession of lender
In the event that the lending institution is unable to prove that it has granted consumer credit by scrupulously respecting consumer credit law, he may never be able to get his loan back. As a result, it is therefore crucial that the lending institution establish a solid file on the applicant before granting him consumer credit.
? Setting the interest rate for your consumer credit
In addition to establishing a score and a complete file when granting consumer credit, the lending institution must ensure good profitability on the funds thus lent. This profitability will be possible by carefully determining the interest rate to be applied to each of the consumer credits granted. To achieve this, one could imagine a breakdown of the costs to be covered by the lending institution as follows:
- Administrative and advertising costs
- Current operating expenses
- Remuneration of employees and intermediaries
- Losses on accounts receivable related to the insolvency of borrowers
- The cost of capital borrowed and used to grant consumer credit
- The margin of the establishment for its profit and the remuneration of the shareholders
To this is added a weighting of the rate according to the scoring of each of the borrowers. According to this logic, the rates offered on the market in Switzerland currently oscillate between 3.9% and 9.95%. The rate obtained when applying for consumer credit will therefore vary according to the cost structure of the lending institution and the individual situation of each borrower. This, in order to cover all the aforementioned costs.
The Swiss consumer credit market
In Switzerland, there are around ten lending institutions that share the consumer credit market. When the competition is important, it is therefore crucial to be accompanied by a neutral and independent intermediary. Each establishment applies a different analysis method to your file and therefore offers more or less advantageous conditions depending on your situation.
By requesting the services of Lica, you benefit from direct access to the main market players while guaranteeing you the highest rate of acceptance of your file. Our experts analyze and prepare your request before applying for consumer credit. Thus, you avoid useless refusals which could definitively block your file following a bad inscription with central credit office (ZEK).
With Lica you get your consumer credit more easily
Obtaining consumer credit on the best terms is not an easy task! Given the multitude of service providers and the need to submit an impeccable file, it is therefore strongly recommended to be accompanied by a quality intermediary. In addition to preparing your file according to the different standards of financial service providers, Lica can guide you to the right solution the first time. Thus, you save time and money while avoiding useless and harmful refusals for your scoring.
Our credit specialists will accompany you in a neutral and confidential way throughout the process of applying for your consumer credit!
Do you have any questions before applying? Our advisors are there to answer your questions 7 days a week directly on WhatsApp. Ask us for more information and we will be happy to answer you!
