Chapter 15（9）Consumer Loans, Credit Cards, and Real Estate Lending

Types of Loans Granted to Individuals and Families

1. Purpose – what the borrowed funds will be used for
2. Type – whether the borrower must repay in installments or repay in one lump sum

Consumer lending

Residential mortgage loans 住房抵押贷款

1. credit to finance the purchase of a home or to fund improvements on a private residence
2. bear a term of 10-30 years
3. secured by the property itself
4. carry either a fixed interest rate or a variable interest rate

Nonresidential loans

• installment loans 分期贷款
  • short-term to medium-term loans, payable in two or more consecutive payments
  • employed to buy automobiles, furniture and home appliance
• non-installment (single-payment) loans
  • short-term loans for immediate cash needs that are repayable in a lump sum
  • used to cover the cost of vacations, medical care, and auto and home repairs
• Revolving credit loans (credit card loans) 循环信贷

Credit Card Loans

One of the most popular forms of consumer credit today is accessed via credit cards

1. A hybrid form of credit
2. Consumers can charge a purchase on the account represented by the card
3. offer convenience on a revolving line of credit

Difference:

• Credit card: A card issued by a bank or business authorizing the holder to borrow money or buy products and services on credit
• Debit card: A bankcard used to make an electronic withdrawal from funds on deposit in a bank, as in purchasing goods or obtaining cash advances

Installment or non-installment one

1. non-installment credit: pay off the charge in one billing period, escaping any finance charge

2. installment credit: pay off the purchase price gradually, incurring a monthly finance charge

Parties involved

• Cardholder (持卡人): The owner of the card used to make a purchase; the consumer.
• Card-issuing bank (发卡行): The financial institution or other organization that issues the credit card to the cardholder.
• Merchant (商户): The business accepting credit card payments for products or services sold to the cardholder
• Acquiring bank (收单行): The financial institution accepting payment for the products or services on behalf of the merchant.

Explaination

• Credit limit: the maximum amount of credit that a card issuer will extend to a card holder
• The minimum payment: the lowest amount you can pay on your credit card by the due date each month to avoid penalties
• Grace period: the time the cardholder has to pay the balance before interest is assessed on the outstanding balance.

Interest charges

• Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

the revenues of banks from credit card business

1. Interests
   • Late payments or overdue payments
2. Commission (discount fees): Merchants pay their banks fees of certain percent of each sale.
   • the single largest component of the various fees that banks deduct from merchants' credit card sales.
3. Fees charged to customers:
   • annual fee: a yearly charge similar to a membership fee. Many companies offer "no annual fee" cards today.
   • cash-advance fees: charged against your card when you borrow cash from the lender.

Evaluating a Consumer Loan Application

• Character and Purpose
  • Key factors in analyzing any consumer loan application are the character of the borrower and the borrower’s ability to pay
  • Consumer lenders nearly always check with one or more credit bureaus concerning the customer’s credit history
  • In the case of a borrower without a credit record or with a poor track record of repaying loans, a cosigner may be requested to support repayment
  • Many lenders regard a cosigner as primarily a psychological device to encourage repayment of the loan
• Other Important Items For Lenders
  • Income Levels
  • Deposit Balances
  • Employment and Residential Stability • Pyramiding of Debt
• How to Qualify for a Consumer Loan
  • Home ownership or ownership of any form of real property
  • Maintain strong deposit balances
  • The most important thing to do – truthfully answer all of the loan officer’s questions