Legal Definitions - consumer credit

Consumer credit refers to money or financial resources provided to individuals for the purpose of purchasing goods and services for personal, family, or household use.

It allows consumers to acquire items or services immediately and pay for them over time, typically with interest or fees. This type of credit is distinct from business loans, which are extended to companies for commercial purposes, and is heavily regulated by laws designed to protect consumers.

• Example: Sarah needs a new car to commute to her job. She visits a dealership, chooses a vehicle, and takes out a loan from a bank to cover the purchase price. She agrees to repay the bank in monthly installments over five years, plus interest.

  Explanation: This is consumer credit because Sarah, an individual, is borrowing money specifically to buy a car for her personal transportation needs. The loan facilitates her purchase of a consumer good, which she will pay for over an extended period.

• Example: Mark wants to remodel his kitchen to improve his home's functionality and value. He applies for a personal loan from a credit union to finance the cost of materials and contractors. The loan is unsecured, meaning it's not tied to a specific asset, and he plans to repay it over three years.

  Explanation: Mark is using consumer credit here because he is an individual borrowing funds for a personal purpose – improving his home. The kitchen renovation is a service and improvement for his household, not a business investment, making the loan a form of consumer credit.

• Example: Emily is buying a new laptop online. At checkout, she selects a "Buy Now, Pay Later" option offered by a third-party service, which allows her to split the total cost into four interest-free payments over six weeks. She receives the laptop immediately.

  Explanation: This illustrates consumer credit because Emily, as an individual, is receiving a short-term financing arrangement to acquire a personal consumer good (the laptop). Even though it's interest-free and short-term, it's still a form of credit extended to facilitate a consumer purchase that she pays for over time.