Consumer Loans

Consumer lending (particularly credit cards) is very profitable for lenders.

In contrast to business loans, individuals—not organizations—borrow through consumer loans. People borrow money for several different reasons. They may need to buy a car, replace an appliance, finance a vacation, or pay their children's college tuition. Banks, savings and loans, and credit unions also make loans for home additions and other residential property improvements. The amounts loaned are also generally smaller than those made available for business.

Most borrowers take advantage of installment loans. These loans allow the borrower to repay the lender in repeating monthly payments, with either a fixed or floating interest rate. Each payment is a combination of principal and interest, although if consumers make the minimum payment amount each month, only a small portion will go toward principal. Another type of loan is the short-term (usually six months or less) non-installment loan. Principal and interest are repaid in one lump sum upon maturity. A consumer may use a non-installment loan to pay for home repairs, a vacation, medical care, or other immediate needs.

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