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CONSUMERCREDIT
MEANING Loans, which a bank or any other financial
institutionprovides to an individual i.e. customer for the
purchase of consumer durables, are termed asconsumer credit.
Such loans are normally given for the purchase of
consumer durables like vehicles, televisions, airconditioners,
washing machines, etc., and arerepayable over a period of time
which normally rangesbetween 3 months to 5 years.
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TYPESOFCONSUMERCREDIT Consumer loans:
1. Budget accounts2. Revolving Personal loans3. credit account4.
Property improvement
loans5. Cheque cards6. Credit cards7. Debit cards
Hire purchase / Installmentcredit:
1. Hire purchase credit2. Conditional sale
3. Credit sale
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CONSUMERLOANS
In recent times, consumer lending by thebank has become an
increasing part ofinstallment credit debt.
In order to get consumer loans, the
prospective borrower must be an accountholder and therefore
known to the bank.While granting the loans the banker must
strictly investigate as to the partys
character, means his need for loan andrepaying capacity.The
banker should see whether the
individual limits, his borrowings are withinhis means, salary or
resources.
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PERSONALLOANS
Personal loans are given to customers ofthe bank by means of a
cash credit, or aloan, or an overdraft.
These loans are unsecured and are
available for a period up to 3 years.These are easy to arrange
and made at
fixed interest rates. These are repayableon the basis of fixed
monthly repayment
programme.The interest is calculated on the amount
of the loan at the time of granting loanitself at the bank's
current rate ofinterest.
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EXAMPLE
Amount borrowed Rs. 200000Interest @12% p.a. 48000for 2
years.
248000
Sum to e repaid in 24monthly installmentsof Rs.10333.33
248000
Balance = NIL
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BUDGETACCOUNTS
A bank account opened for payinghousehold bills, which is
credited atregular or monthly payment fromcustomers current
account.
Examples of some of the expenses, whichcan be estimated include
rates,electricity, gas and clothing.
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REVOLVINGCREDITACCOUNT
It is a flexible account.
In this finance, the future commitmentdoes not have to be
identified and
assessed.Revolving credit loans enables customers
to borrow a prescribed limits wheneverthey wish unless and until
the credit limitis not exceeded.
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PROPERTYIMPROVEMENTLOANS
Property improvement loans are given forrepairs and improvements
such asinstallations of double-glazing or central
heating systems, which maintain orincrease the value of
property.
Such loans maybe allowed up to 10 years.
Security may or may not be required.
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CHEQUECARDS
A cheque card is a documentissued by a bank to payeeguaranteeing
that any chequeup to a stated amount will behonoured at any branch
of theissuing bank or any bank havingmutual arrangement.
The card states the maximumamount for which it is valid,the name
of the issuing bankand the sorting code number ofthe issuing
branch, the name ofthe customer, the card number
and the expiry date. It can be used in two ways:
1) to draw cash at otherbanks and branches, and2) to pay for
goods andservices.
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CREDITCARDS& DEBITCARDS In case of credit card at
the time of purchase is
made without the use ofthe cheque. Here the purchaser of
goods and servicespresents the card and
signs a voucherconfirming the purchaseand the amount due.
The card holder has theoption of paying thebalance within
aspecified period, say 40days from the date ofpurchase, or paying
ininstallments.
At the time of its usethe transaction cost istransferred direct
tothe users bank and theamount detected fromthe account of the
cardholder.
They reduce the volumeof paper particularlycheques being
usedwhich is expensive toprocess.
Funds are transferredthrough electronic fundstransfer at a point
ofsale (EFTPOS).
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HIREPURCHASE/ INSTALLMENTCREDITS Hire purchase credits
Hire purchase contract is an agreement to hire withan option to
purchase when the last installment is paid.This type of credit is
availed where the vendor allowsthe whole or part of the purchase
price to be paid ininstallments and retains ownership until final
payment.
Conditional saleThe vendor enters into a sale agreement with
the
customer who is allowed possession of the goods but notthe
ownership until he has paid the finance company,which lends the
price of the goods and charges intereston the loans.
Credit saleIn this case, the ownership of the goods passes to
the
customer immediately but he s allowed to pay on
deferred terms.
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ADVANTAGESTo customer: It is more convenient way of obtaining
outside finance to
purchase an asset. It is an alternative method of raising funds
for a person
whose banker has declined to grant an advance.To the seller of
goods:
If the vendor is linked with a hire purchase finance
company,sales be higher than in case of credit through
chequeguarantee card and credit cards.
Payment for the goods sold by the way of hire purchase isassured
and received speedily from the finance company at
an agreed time.To finance companies: The interest rate is higher
than that of banks thus financecompanies covers all its overheads
and get a profitable return.
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DISADVANTAGESTo the customer: The cost will invariably be higher
than charges for a bank
overdraft, loans, etc. If the repayment gets delayed, the hire
purchase finance
company may take possession of the goods.To the seller of
goods:
The vendor may be connected with an unsuitable financecompany.
Vendor can provide its own installment credit rather than
arranging hire purchase to be provided by finance co. it
maysuffer from: bad debts, higher administrative overheads.
To finance companies: Company does not meet the buyers and has
to reply on the
honesty and ability of the dealer. There is a possibility of
loss through the fraudulent activity
of dealers.
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INTERNETBANKING
Where banking operations are carried out throughelectronic
means, it takes the form of e-banking.
This includes operation of devices like computer,
ATM, telephone, etc.
Banking transactions are done on the website of a
banking company or financial institutions is called
internet banking.
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MECHANICSOFINTERNETBANKING
The basic steps involved in completing transactions
through internet banking are available. The entire
mechanism involved in internet banking are:
Access the banks site
Click the option whichprovides internet banking
enter the User-ID,
Password/PIN
Logout.
Perform the requisitetransactions
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SERVICES1. Sending in request for a chequebook from convenience
of home.2. Viewing accounting statements on-line.
3. Notification of change of address so as to update the
recordsaddress specified by the customer.
4. Requesting for a draft on-line to be couriered at the
mailingaddress specified by the customer.
5. Transferring of funds from one account of the customer to
another.6. Viewing details of past 3monthss transaction.7.
Updating of foreign exchange currency rate.8. Intimating on-line
about a stop payment.
9. Notification of lost/stolen ATM card.
*It is more helpful for NRIs : easy access to banking
serviceswithout restricting it by any geographical boundaries and
timezones.
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INTERNETBANKING
1. Basic banking transactionscan be performed at anytime by the
customer.
2. No personal visit to bank.3. Access and operate ones
account from anywhere.4. Extensive, geographically
divergent, and mortarstructure of the branch isnot needed.
5. Requirement of staff is
optimized at the branch.6. Easy, convenient, efficient,and
speedy banking services.
7. Transactions automaticallygets posted in all requireddata
tables, thus reducing
the workload.
1. It requires a PC and net, where a
customer has to pay to checkthe balance.
2. Restricted use: all thetransactions cannot be carriedout on
net. Ex: many deposits
and some withdrawals requirethe use of postal service.
3. Unreliable communicationfacility: pc modem often
getsdisconnected, frequent log-inbecomes necessary.
4. Slow browsing.5. Lack of trust: in case of new
banks with net-banking.
6. safety problem: securitythreats on the net leads to
perception of an unsafe channel.
Advantages Disadvantages
