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The Risks, Costs, and Benefits of Consumer Loan Options and Steps Needed To Control Costs - Research Paper Example

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The research paper "The Risks, Costs, and Benefits of Consumer Loan Options and Steps Needed To Control Costs" presents how important for banks to have an effective credit management system, policy on loan facilities, ability to measure levels of risks and a clear loan review procedures. …
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The Risks, Costs, and Benefits of Consumer Loan Options and Steps Needed To Control Costs
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1.1.2 Cost of Consumer Loans There are a number of costs associated with consumer loans. These include interest, carrying charges and installment price. Before banks issues loan facility to customers, there should be a clear calculation on the amount of money to be recovered on installments basis, as well as, the amount of interest payable. All these are dependent on the amount of loan offered to the customer, the repayment period, income of the customer and interest rates as set by the financial institution. 1.1.

3 Benefits of Consumer Loans One of the benefits of consumer loans is that it helps in servicing short term financial needs such as home improvements, vacations, emergency bills and wedding. It is also considered to offer security to customers. So long as an individual have acceptable credit history, the person becomes eligible for consumer loans. Similarly, a person can also use consumer loan facilities to clear previous debts thus helps in improving credit rating. Consumer loans can be used in asset acquisition.

In addition, no security or collateral is required in this form of loan facility. Given that it does not require referees and other collaterals, consumer loan application takes shorter time. Finally, people poor credit history also offered the opportunity to access consumer loan facilities. 1.1.4 Steps Needed To Control Costs Consumer Loans. One of the initial steps in controlling cost of consumer loans is by adopting positive spending behavior and controlling both short term and long term personal expenditures.

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