What Is Consumer Lending?

Learn the ins and outs of consumer lending.

Consumer lending simply refers to any type of lending to non-commercial customers outside of mortgage lending. Consumer loans tend to be unsecured and reflect "consumables," such as a car or even a home remodeling project. Consumer loans that are secured fall under the category of loans for CDs or mutual funds. Most banks and some lending services offer consumer loans at a range of different rates, and those interested in acquiring a loan are encouraged to shop around before selecting the right consumer loan for their situation.

The Facts

Consumer lending is the type of lending that banks and other types of lending institutions offer those looking to finance something other than a home. In fact, consumer loans are considered a separate category altogether from mortgage loans, and consumer lending is viewed as a sign of economic conditions. In other words, an increase in consumer lending suggests that consumers feel comfortable spending the extra money on consumable items, whereas a decrease in consumer lending indicates that consumers are tightening their belts in the face of economic downturn.

Types

Consumer loans range in type, and the concept of consumer lending tends to be fairly broad. A loan for a new car, an RV, a manufactured home or a boat is considered a consumer loan because the items in question are deemed consumable. Additionally, a home equity loan, a home equity line of credit, a CD loan and even a credit card can fall under the category of consumer lending. In the latter case, there is generally no single item being financed, so the lender simply approves a specified amount for the applicant to use and establishes monthly payments based on this amount and the rate.

Significance

Consumer lending provides people the opportunity to increase their personal possessions or improve their property with an unsecured loan. Unsecured loans, or signature loans, are deemed unsecure because they do not require the customer to provide any collateral. In most cases, the amount of the loan provided is determined based on the credit rating of the applicant. As a result, an unsecured loan might be more difficult to acquire--because the lender is seen as taking a greater risk--than a secured loan (such as the lien on a mortgage).

Considerations

Because credit rating can be a determining factor in a consumer loan, many lenders are careful about providing these. Among banks, the bank's loan department might be less willing to establish a loan for a customer instead of a non-customer, because the bank can verify the customer's account situation more easily. Nevertheless, if the lender states that only credit rating is considered, that lender cannot use a customer's account for or against him or her.

Expert Insight

Any type of loan comes with a risk, and financial experts--and lenders--recommend that applicants consider their own financial situations carefully before taking on a new loan. Additionally, the Federal Trade Commission offers a number of resources that are designed to assist consumers in making a decision about a consumer loan.

References

• Business Dictionary: Consumer Loan
• FTC: Consumer Lending Guide
• Industry.bnet.com: Consumer Credit Losses at JPMorgan