Direct consumer credit ( CDC ) is a debt that a person incurs when buying a good or service. Consumer credit includes purchases obtained with credit cards, lines of credit and some loans. The most common form of consumer credit is a credit card .
The CDC is often measured by economists and other financial analysts, as it serves as an indicator of economic growth. For example, if consumers can easily apply for loans or credit cards and are able to repay debts on time, the economy will be stimulated, resulting in economic growth.
This type of credit is widely used by consumers who want to buy durable or non-durable services. This includes automobiles, education costs, recreational vehicles (RVs), loans, but does not include debts obtained to buy margin on investment or real estate accounts. For example, a mortgage loan is not consumer credit. However, 65-inch high-definition television charged to a credit card is consumer credit.
The CDC system allows consumers to obtain an advance or loan to spend money on products or services for family, household or personal use, repaid on a specified future date. Therefore, retailers, department stores, banks and other financial institutions offer consumer credit.
Advantages of CDC
The main advantage of consumer credit is that consumers can buy goods and services and pay for them later. Consumers can buy items they need when their funds are low. Consumer credit offers an additional form of payment.
Disadvantages of CDC
The main disadvantage of using consumer credit is cost. If a consumer fails to pay a loan or credit card balance, it affects their credit score, also called a ‘score’, resulting in late fees and interest.
Types of CDC
Installment credit is used for a specific purpose, for a defined amount and for a specific period. Payments are generally the same amount each month. Examples of purchases made in installment credit include large appliances, automobiles and furniture.
These types of loans generally offer lower interest rates than revolving credit. For example, an auto company holds a lien on the car until the loan is repaid. The total amount of principal and interest is repaid within a predefined period. If the customer defaults on the loan payments, the company may resume payment of the vehicle and collect fines.
Revolving credit can be used for any purpose. Loans are made continuously for purchases until the consumer reaches his credit limit. Customers receive bills periodically to make at least one minimum monthly payment.
For example, a credit card can approve a $ 5,000 limit with a 13% interest rate. If the consumer defaults on payments, the credit card company may charge late fees or other penalties.