Consumer Credit
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Consumer credit, or consumer debt, is personal debt taken on to purchase goods and services. Although any type of personal loan could be labeled consumer credit, the term is more often used to describe unsecured debt of smaller amounts.
Definition
Consumer credit, or consumer debt, refers to personal debt incurred to purchase goods and services. While any form of personal loan can be termed consumer credit, the term is more commonly used to describe smaller amounts of unsecured debt.
Origin
The concept of consumer credit dates back to the early 20th century when banks began offering personal loans to boost consumption. As the economy developed and consumer culture emerged, consumer credit became an essential part of personal financial management.
Categories and Features
Consumer credit is mainly divided into unsecured loans and credit card debt. Unsecured loans are typically used for purchasing large items like cars or appliances, while credit card debt is used for everyday expenses. Unsecured loans usually have lower interest rates but require a fixed repayment plan; credit card debt offers flexibility but comes with higher interest rates.
Case Studies
Case Study 1: Apple Inc. offers consumer credit services through its Apple Card, allowing users to make installment payments on Apple products. This strategy not only boosts product sales but also enhances customer loyalty. Case Study 2: Amazon, in partnership with Synchrony Bank, launched the Amazon Store Card, providing installment payment options for purchases, significantly driving sales on the platform.
Common Issues
Common issues investors face with consumer credit include high interest rates and debt management challenges. It is advisable to carefully read the terms and plan repayment schedules wisely to avoid debt accumulation.
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