Consumer Loan denotes any of a wide array of loan products used by consumers: It includes motor (car) finance, student loans, lines of credit. Consumer loans are distinct from credit card debt and mortgage debt secured against property.
There is a very large variety of consumer loan types:
- Duration: Loans are typically of short to medium duration (up to a few years)
- Interest rate calculation: can be fixed or variable (floating) and reference various rates, even foreign currency rates
- Whether the loan is unsecured or with collateral (e.g. the car)
- How funds are advanced (line of credit, term loan, installments)
Due to relatively shorter maturities, the primary risk with loans is credit risk. It is a type of retail credit risk, namely the legal entity that may default on the loan contract is a Natural Person. Correspondingly the obligations and legal framework that is applicable in such a case is determined by the laws governing the responsibilities of natural persons for honouring their financial contracts. These laws vary considerably from country to country