Retail loans are loans made to individual consumers, with collateral or without, by banks, credit unions, mortgage companies, and savings and loan associations. Examples include home mortgages, vehicle loans, and payday loans. Payday loans carry higher interest rates and are meant for emergency purposes only.
Retail loans are the term used to describe any type of loan that is made to individual consumers rather than to businesses or other types of institutions. Considered the most common type of lending activity in the world, bank-to-consumer lending is serviced by several different types of lenders, including banks, credit unions, mortgage companies, and savings and loan associations. Loans issued by these institutions can be guaranteed, which means that some type of collateral is guaranteed for the life of the loan. At other times, the loans are unsecured, which means that the lender did not require any collateral.
One of the most common examples of retail loans is a home mortgage. With this agreement, qualified individuals can obtain the necessary financing to purchase a residence. While qualifications will vary from lender to lender, even within the same nation, most will require the loan applicant to have a consistent income of a minimum amount, have a reasonable debt-to-income ratio, and have a credit score above a certain amount. Home mortgages are typically secured loans, in the sense that the home purchased with the mortgage is held as collateral until the note is fully retired.
Other types of retail loans include issuing loans for a wide range of financial needs. Loans for the purchase of vehicles are also very common, and the vehicle purchased serves as collateral for the loan. Individual consumers can also get loans to help pay off medical bills, make home repairs, or even finance a vacation. Depending on the nature of the loan and the individual’s credit rating, some of these loans may not require any collateral and are issued as unsecured loans.
In recent years, a new form of retail lending has emerged. Known as a payday loan, this type of unsecured loan helps provide quick cash in an emergency. The loan is usually scheduled for full repayment within a week or two, and carries a higher interest rate than other types of laws. In some jurisdictions, legislators have enacted laws that cap the amount of interest lenders can charge on loans, although those interest rates are still much higher than loans obtained from more traditional lenders. For the most part, retail loans of this type should be considered for emergency purposes only, and when the funds needed to pay off the debt can reasonably be made available before the loan is due.
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