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CONSUMER CREDIT

MEANING

Loans, which a bank or any other financial institution provides to an individual i.e. customer for the purchase of consumer durables, are termed as consumer credit. Such loans are normally given for the purchase of consumer durables like vehicles, televisions, air conditioners, washing machines, etc., and are repayable over a period of time which normally ranges between 3 months to 5 years.

TYPES OF CONSUMER CREDIT

Consumer loans: 1. Budget accounts 2. Revolving Personal loans 3. credit account 4. Property improvement loans 5. Cheque cards 6. Credit cards 7. Debit cards Hire purchase / Installment credit: 1. Hire purchase credit 2. Conditional sale 3. Credit sale

CONSUMER LOANS
In

recent times, consumer lending by the bank has become an increasing part of installment credit debt. In order to get consumer loans, the prospective borrower must be an account holder and therefore known to the bank. While granting the loans the banker must strictly investigate as to the partys character, means his need for loan and repaying capacity. The banker should see whether the individual limits, his borrowings are within his means, salary or resources.

PERSONAL LOANS
Personal

loans are given to customers of the bank by means of a cash credit, or a loan, or an overdraft. These loans are unsecured and are available for a period up to 3 years. These are easy to arrange and made at fixed interest rates. These are repayable on the basis of fixed monthly repayment programme. The interest is calculated on the amount of the loan at the time of granting loan itself at the bank's current rate of interest.

EXAMPLE
Amount borrowed Interest @12% p.a. for 2 years. 248000 Sum to e repaid in 24 monthly installments of Rs.10333.33 Balance = Rs. 200000 48000

248000 NIL

BUDGET ACCOUNTS
A

bank account opened for paying household bills, which is credited at regular or monthly payment from customers current account. Examples of some of the expenses, which can be estimated include rates, electricity, gas and clothing.

REVOLVING CREDIT ACCOUNT


It

is a flexible account. In this finance, the future commitment does not have to be identified and assessed. Revolving credit loans enables customers to borrow a prescribed limits whenever they wish unless and until the credit limit is not exceeded.

PROPERTY IMPROVEMENT LOANS


Property

improvement loans are given for repairs and improvements such as installations of double-glazing or central heating systems, which maintain or increase the value of property. Such loans maybe allowed up to 10 years. Security may or may not be required.

A cheque card is a document issued by a bank to payee guaranteeing that any cheque up to a stated amount will be honoured at any branch of the issuing bank or any bank having mutual arrangement. The card states the maximum amount for which it is valid, the name of the issuing bank and the sorting code number of the issuing branch, the name of the customer, the card number and the expiry date. It can be used in two ways: 1) to draw cash at other banks and branches, and 2) to pay for goods and services.

CHEQUE CARDS

CREDIT CARDS & DEBIT CARDS


In case of credit card at the time of purchase is made without the use of the cheque. Here the purchaser of goods and services presents the card and signs a voucher confirming the purchase and the amount due. The card holder has the option of paying the balance within a specified period, say 40 days from the date of purchase, or paying in installments.

At the time of its use the transaction cost is transferred direct to the users bank and the amount detected from the account of the card holder. They reduce the volume of paper particularly cheques being used which is expensive to process. Funds are transferred through electronic funds transfer at a point of sale (EFTPOS).

HIRE PURCHASE / INSTALLMENT CREDITS

Hire purchase credits: Hire purchase contract is an agreement to hire with an option to purchase when the last installment is paid. This type of credit is availed where the vendor allows the whole or part of the purchase price to be paid in installments and retains ownership until final payment. Conditional sale: The vendor enters into a sale agreement with the customer who is allowed possession of the goods but not the ownership until he has paid the finance company, which lends the price of the goods and charges interest on the loans. Credit sale: In this case, the ownership of the goods passes to the customer immediately but he s allowed to pay on deferred terms.

ADVANTAGES
To customer: It is more convenient way of obtaining outside finance to purchase an asset. It is an alternative method of raising funds for a person whose banker has declined to grant an advance. To the seller of goods: If the vendor is linked with a hire purchase finance company, sales be higher than in case of credit through cheque guarantee card and credit cards. Payment for the goods sold by the way of hire purchase is assured and received speedily from the finance company at an agreed time. To finance companies: The interest rate is higher than that of banks thus finance companies covers all its overheads and get a profitable return.

DISADVANTAGES
To the customer: The cost will invariably be higher than charges for a bank overdraft, loans, etc. If the repayment gets delayed, the hire purchase finance company may take possession of the goods. To the seller of goods: The vendor may be connected with an unsuitable finance company. Vendor can provide its own installment credit rather than arranging hire purchase to be provided by finance co. it may suffer from: bad debts, higher administrative overheads. To finance companies: Company does not meet the buyers and has to reply on the honesty and ability of the dealer. There is a possibility of loss through the fraudulent activity of dealers.

INTERNET BANKING
Where banking operations are carried out through electronic means, it takes the form of e-banking. This includes operation of devices like computer, ATM, telephone, etc. Banking transactions are done on the website of a banking company or financial institutions is called internet banking.

MECHANICS OF INTERNET BANKING


The basic steps involved in completing transactions through internet banking are available. The entire mechanism involved in internet banking are:
Access the banks site Click the option which provides internet banking enter the User-ID, Password/PIN

Perform the requisite transactions

Logout.

SERVICES
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* It is more helpful for NRIs : easy access to banking services

Sending in request for a chequebook from convenience of home. Viewing accounting statements on-line. Notification of change of address so as to update the records address specified by the customer. Requesting for a draft on-line to be couriered at the mailing address specified by the customer. Transferring of funds from one account of the customer to another. Viewing details of past 3monthss transaction. Updating of foreign exchange currency rate. Intimating on-line about a stop payment. Notification of lost/stolen ATM card. without restricting it by any geographical boundaries and time zones.

INTERNET BANKING
Advantages
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Basic banking transactions can be performed at any time by the customer. No personal visit to bank. Access and operate ones account from anywhere. Extensive, geographically divergent, and mortar structure of the branch is not needed. Requirement of staff is optimized at the branch. Easy, convenient, efficient, and speedy banking services. Transactions automatically gets posted in all required data tables, thus reducing the workload.

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Disadvantages It requires a PC and net, where a customer has to pay to check the balance. Restricted use: all the transactions cannot be carried out on net. Ex: many deposits and some withdrawals require the use of postal service. Unreliable communication facility: pc modem often gets disconnected, frequent log-in becomes necessary. Slow browsing. Lack of trust: in case of new banks with net-banking. safety problem: security threats on the net leads to perception of an unsafe channel.