Consumer finance is a huge business in the United States as of 2010. The U.S. is a capitalist country, driven by consumer spending. And a large percentage of products purchased are not bought outright, but rather financed. Some purchases are almost exclusively financed--like houses and cars. Consumers can take advantage of excellent programs by monitoring and building their credit scores.
Significance
The significance of consumer finance is huge: finance companies rely upon loans to stay in business. These companies include home finance companies, auto finance companies, credit card companies and many others. Fees, interest rates and origination charges often pad the pockets of lenders. When consumer credit becomes scarce (like following the 2008 credit crisis), the economy slows tremendously.
Personal Finance
Perhaps the largest percentage of all consumer financing in the United States happens via credit cards. Americans often struggle with credit card debts. Almost everything can be charged on plastic. Consumers who do not pay close attention to fees, rates and credit limits can find themselves in precarious financial situations. However, with fiscal responsibility, consumers can obtain very low-interest credit cards and highly valuable reward programs.
Auto Financing
Auto financing is another form of consumer finance. Nearly all new cars come with loans. These are often closed-end loans. A revolving loan (like a credit card) allows a consumer to borrow funds, repay them and re-borrow against the credit line. A closed-end loan is pre-calculated. A set number of monthly payments for a set amount are predetermined and then agreed upon at closing. So long as payments are made on time, the loan expires when all payments have been made.
Home Financing
Another huge business in the U.S. is home loan financing. Mortgages, equity loans and home repair loans are all very common programs. Banks and credit unions, who cater almost exclusively to top-tier borrowers (those with credit scores above 720), offer the most competitive financing programs. Finance companies, like Wells Fargo Financial, offer higher-cost loan programs to borrowers who've experienced credit problems.
High-Risk Loans
One ethically gray segment of the consumer finance market is that of sub-prime lenders. These lenders take many forms: payday lenders, car title loans and sub-prime mortgages. Payday loans, especially, are high-cost and high-risk. In the worst cases, they can lead to an endless cycle of re-borrowing--causing interest charges to increase exponentially. These loans historically target the weakest and most vulnerable segments of the population.
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