Consumer Finance

Consumer Finance

Consumer finance is a term used to describe unsecured lending to individuals intended to finance purchases.

Consumer finance covers a wide range of activities, including loans from banks and indirect finance such as hire-purchase agreements, and loans by specialist retail finance companies.

At the most respectable end of the market, consumer finance is an integral part of retail banking and an important source of unsecured loans

However, in many countries some 'consumer finance' companies are little different from loan sharks, offering considerably higher interest rates than those available on other unsecured loans.

On another view, however, such companies are beneficial because they offer credit to sectors of society which are otherwise excluded from financial markets, and the credit offered is no worse than the alternative credit cards.

Controversial practices

The more dubious consumer finance companies are held to engage in the following practices.
Failing to tell people who ask for a loan from the lender that they really have good credit and can get a better deal somewhere else (a subprime loan is usually twice as expensive as a non sub prime)
Sending live checks through the mail which when used become loans. This can trick some people, and the interest rate is usually purposely high
Charging very high fees on a mortgage refinance.
Offering refinance deals that are worse than the previous loan, usually by showing that the new payment will be lower, but not revealing that the new payment does not include taxes and insurance.
Selling single premium credit insurance, also financing that into the loan

Critics consider also the concept and geographical placement of consumer finance stores as a form of "redlining". This is because the sub prime lenders in poorer communities will often be the only local store, yet will be higher priced.

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