Consumer Loan - What Is a Consumer Loan?

Consumers receive special protection through this type of loan. It must meet numerous legal requirements and disclose all expenses arising from the loan or credit. A consumer loan is a loan or credit that a private individual or consumer can apply for from a company, usually a financial institution. It is used for personal purposes only. In terms of loan type, these are mostly classic installment loans. A private individual can take them out at any bank. The form of the loan gives private customers protection, since banks hold a major knowledge advantage in the credit and lending sector. So that this disadvantage is not exploited against consumers, these loans are strictly bound by legal regulations with regard to format and content. In principle, a loan or credit agreement must be in writing and the customer's signature is required. The contract must contain all important terms for this loan. The legislature sets minimum disclosures. These include the credit limit, fees, the borrowing rate (nominal interest rate) and other loan fees. It also contains the form of collateral, any insurance costs and the repayment terms. The loan or credit agreement must also show the effective annual interest rate. It is a direct summary of the loan costs per year and the direct option for comparing the different offers.

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Legal Specifications

There are no insurance policies that were taken out voluntarily. Additional rules mean that a consumer loan comes with further consumer protection. For example, borrowers always have a right of withdrawal. The contract must expressly refer to the notice of the right of withdrawal and highlight it. The withdrawal period is fourteen days. The bank cannot simply terminate this loan in the event of late payment. A deadline must first be set and the minimum amount in arrears must be reached. The term consumer loan reflects the legal function of such loans or credits. They are, however, also offered under other names to explicitly point out that the consumer receives protection here. Examples are the installment loan for private customers, the consumer credit, the personal loan, or purpose-related names such as purchase loan, vacation loan or auto loan.

They are likewise consumer loans, as long as they are aimed at private customers and serve private consumption purposes. But here, too, there are some special cases. For example, overdraft facilities and small loans of up to 200 euros are not subject to the rules for consumer credit agreements (under German law). The same applies to loans from employers as well as real estate and construction loans from the public sector. These include, for example, the Kreditanstalt für Wiederaufbau (KfW). The consumer loan rules apply in the opposite case, when a loan is taken out by a private individual to start a business and it does not exceed 50,000 euros.