What Is Consumer Lending?

Consumer lending is the category of financing centered on individual and household consumers. It includes home and auto loans, as well as personal loans extended to people who use the funds for individual or family purposes.

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Secured Consumer Loans

Consumer lending includes secured and unsecured loan types, according to the USLegal website. Secured consumer lending includes financing backed by collateral. Home, cars and boats are common personal property items purchased through consumer loans. These are secured loans because the consumer puts the property up as collateral to gain access to the financing or to get better rates and terms. Home equity loans and lines of credit are other examples of secured consumer loans. With these types of loans, homeowners assume another property lien to gain access to affordable financing based on the equity value of their homes.

Banks have less risk with secured loans because they have the right to repossess your property if you fail to repay. It is typical that people use this type of financing to acquire major assets that they can't buy with cash. A reasonable interest rate allows consumers to borrow and repay the debt over time.

Warning

Lenders are required to disclose all pertinent interest rates and terms on consumer loans, according to USLegal.

Unsecured Consumer Loans

An unsecured consumer loan is financing that doesn't require collateral. Personal loans and credit cards are examples of unsecured consumer lending. Because banks don't require collateral to obtain financing, the interest rates are normally higher with unsecured loans. The credit decisions are based largely on the credit rating and income of the borrower. It is difficult for someone with bad credit to get an unsecured personal loan. If financing is obtained, the interest rates are often high compared to secured loans, and the interest charges paid over time are high as well.

The loan amounts offered through unsecured consumer loans vary. Wells Fargo, for instance, offers personal loans ranging from $3,000 to $100,000 as of the time of publication. The greater a borrower's income and assets, the higher her borrowing potential. Small loans are typically granted within hours or days.