Act No. 257/2016 Coll. on consumer credit directly defines the term consumer credit as a “deferred payment, a monetary loan, a loan or a similar financial service provided or mediated to a consumer.” The term consumer credit, therefore, means some form of a loan. And it does not matter whether it is for borrowed money or for the gradual repayment of purchased or leased items.
The Consumer Credit Act defines three basic types of these loans:
- Consumer credit as a non-purpose loan of funds
- Consumer credit for housing – mortgage or building savings loan
- Tied consumer credit – loan linked to a specific purchase of goods or services (hire-purchase)
The Act also defines what is not a consumer credit falling within the scope of this Act:
- Loans that are provided for investment purposes
- Services or supplies of goods that are paid on a continuous basis (electricity, gas)
- Credit agreed with pawnshop operator when the customer receives money in exchange for a movable item
What is consumer credit for?
The consumer takes out a loan or loan to raise money to acquire or pay for what he does not currently have enough money for. Alternatively, it will deal with the gradual repayment of the current purchase. So the consumer basically rents the money for some time. The rental price is partly determined as an interest rate calculated as a percentage of the amount due. However, the price may also include many other components, the so-called fees – for example, to settle a loan, to draw money, to keep a loan account, etc. All borrowing costs should then be added to the APR.
The APR and the total cost of the loan may vary
The total cost of the loan is then called the APR or the annual percentage rate of charge. But beware, the law allows not to mention everything in the APR. This is on condition that additional costs (for setting up or maintaining an account, costs associated with payment transactions) are separately disclosed in the consumer credit agreement.
Therefore, the client should prefer the final price paid by the consumer. Indeed, each consumer credit provider is obliged to communicate this amount to the applicant for the loan (consumer). As well as the repayment schedule, the consequences of default and other loan requirements.
Who can provide consumer credit
The loan provider is a legal entity that provides its funds for consideration as if it leases them to the consumer. Its business is based on this because it collects interest and fees on the loan. The result is profit.
According to the law, only a legal entity listed in the Act may be a consumer credit provider. It is about:
- Non-bank consumer credit provider
- Savings and Credit Cooperative
- Payment institutions
- Small-scale payment service provider
- Electronic money institutions
- Small-scale electronic money publisher
At the same time, a non-bank consumer credit provider has legally clear conditions that it must meet to provide consumer credit.
What are the types of consumer credit?
The Act defines three main types, ie consumer credit, bound consumer credit and consumer credit for housing. But the world of loans is much more varied in practice.
We distinguish between types of loans according to many criteria, so as a result, we meet loans:
- Bank or non-bank – according to their provider
- Long-term, medium-term, short-term – by the duration
- Purpose, purpose-free – depending on how the consumer can use the money
- With or without collateral – depending on whether the loan is secured, most real estate
- With or without liability – depending on which the guarantor is required
- Microloans, or loans before payout, are typically loans of up to five thousand
- Fast loans – loans with a maturity of up to one month
- Mortgage – a loan for the acquisition or reconstruction of housing, which is secured by one or more properties
- Building savings loan – loan for the acquisition or reconstruction of housing from the building society, while the client saved part of the loan in advance
- Bridging loan – usually a loan for the acquisition or reconstruction of housing from a building society, to which the client did not save in advance
- Installment Purchases – Progressive Repayment of Purchased and Used Items