What it is and types of credit

Consumer credit is a credit agreement entered into with private individuals, whether for commercial or professional purposes, to finance the purchase of consumer goods, namely computers, travels, automobiles, education or health.

The consumer credit scheme includes:

  • Loans to private individuals amounting to between EUR 200 and EUR 75,000;
  • Credit overruns, even if less than EUR 200;
  • Loans for works on real estate, without a mortgage guarantee or other right on immovable property, even if they amount to more than 75,000 euros.

This consumer credit scheme does not apply to credit agreements:

  • Secured by a mortgage on immovable property or other right on immovable property;

  • The purpose of which is to finance the acquisition or maintenance of property rights over existing or projected land or buildings;

  • Granted by pawnshops;

  • That are for leasing that do not provide for the right or obligation to purchase the leased asset;

  • Granted free of interest and other charges;

  • Granted by the employer to its employees, without interest or with an annual percentage rate of charge lower than the rates practiced on the market.

 

There are several types of consumer credit with different purposes and associated costs:

Personal credit is intended to finance the purchase of goods and services, such as household equipment or education and health services. It can also be contracted without a specific purpose.

It is a credit agreement in which the amount, the term and the repayment modality of the loan are defined at the outset.

Car loans are intended for the purchase of new or used cars or other vehicles.

In car loans the amount, term and repayment modality of the loan are defined at the outset. They may also involve leasing operations.

There are several types of car loans:

  • Car loan subject to the retention of the ownership: this is a car loan in which, in order to guarantee the repayment of the loan until the end of the agreement, a right on the car is registered (reservation of ownership) with the competent conservatory;

  • Car loan not subject to the retention of theownership: this is a car loan where there is no reservation of ownership. The institution may require other guarantees, such as a personal guarantee, for example;

  • Financial leasing: this is a financing modality through which the credit institution (lessor) grants the customer (lessee) the temporary use of a car, in exchange for the payment of a monthly rent. At the end of the agreement, the customer will be able to purchase the car, if interested, by paying the amount defined in the agreement (residual value);

  • Long-term rental: this is a modality in which the credit institution temporarily grants the use of a car to the customer, through the payment of a monthly rent. When the contract is entered into, the customer agrees to purchase the car at the end of the rental.

The renting agreement (or Operational Leasing) is not considered a loan, nor is it contracted by a credit institution. It corresponds to the rental of vehicles on the payment of a monthly rent and generally has an associated set of services (such as car maintenance or tyre replacement services).

Revolving credit is an agreement in which a ceiling is established that can be used over time and re-used as the outstanding balance is being repaid. Usually it is an agreement of indefinite duration.

Revolving credit includes, for example:

  • Credit card: this is an agreement of indefinite duration, in which a maximum credit limit is established and used by means of a card. The repayment of the amount used occurs according to the modality agreed with the institution;

  • Overdraft facility: this is a credit agreement that allows customers to have funds that exceed the balance of their current account, up to a maximum credit limit defined in the agreement. There are different types of overdraft facility agreements, depending on whether or not they involve the domiciliation of salary in the associated current account and depending on whether the repayment term of the credit amount used is equal to or less than one month or more one month;

  • Credit line: this is an agreement of indefinite duration, in which a maximum credit limit is established and in which, as a rule, the credit is made available in the customer’s account;

  • Bank credit account: this is a fixed-term agreement, in which there is no fixed timetable for repayment and in which a maximum credit limit is established.

A credit overrun is an overdraft that is tacitly accepted by the institution and allows customers to have funds that exceed the balance of their current account or the ceiling agreed for the overdraft facility.

The possibility of overrunning must be provided in the agreement of the current account or in the agreement in the form of an overdraft facility.

If the credit overrun is significant and lasts for longer than one month, the customer must be informed of this overrun, the amount exceeded, the nominal rate and any applicable penalties, charges or interest for late payment.

The credit institution may not charge fees for credit overruns.

The debt conversion agreement is a credit agreement entered into between the credit institution and a bank customer in default of a previous credit agreement with the aim of renegotiating the contractual conditions, in the sense of deferring payment of the debt or changing the mode of the repayment of the debt.

When debt conversion agreements make it possible to prevent a legal action for non-compliance and the customer is not subject to less favourable terms than those of the previous credit agreement, only certain specific rules of the consumer credit scheme apply.

The consumer credit agreement may arise in association with other agreements.

The credit agreement may be linked to a purchase and sale agreement or a service agreement when it is used exclusively to finance the payment of the good or service in question. Both agreements constitute an economic unit. An economic unit shall be deemed to exist, in particular, where the supplier of the good or service intervenes in the preparation or conclusion of the credit agreement or if the good or service is expressly identified in the credit agreement.

In the event of poor execution or failure to execute the purchase and sale agreement or the service agreement linked to the credit agreement, and the supplier has not satisfied the customer’s right to the exact performance of the contract, the customer may:

  • Refuse to comply with his or her obligation, as long as the supplier does not comply with the obligation arising from the purchase and sale agreement or the service agreement;
  • Request the reduction of the amount of credit equal to the reduction of the price of the good or service in question;
  • Terminate the credit agreement.

The invalidity or revocation of the purchase and sale agreement or of the service agreement implies the invalidity or revocation of the associated credit agreement.