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CONSUMER FINANCE

MEANING OF CONSUMER
FINANCE

• It refers to the raising of finance by individuals for


meeting their personal expenditure or for the
acquisition of durable consumer goods and for the
purchase /creation of an assets.
IMPORTANT ASPECTS
• Parties to the transactions
• Modes of consumer finance
• Procedure for granting
• Terms of financing
• Purpose of raising finance
• Benefits of consumer finance
PARTIES TO THE TRANSACTION
• In A Bipartite Arrangement
A)borrower/Consumer
B)dealer Cum Financer

• In A Tripartite Arrangement
A) Customer/Borrower
B) Dealer/Sellers
C)financer(may Be A Bank Or Non Banking Company)
MODES OF CONSUMER FINANCE
• HIRE PURCHASE
• INSTALMENT SYSTEM
• OVERDRAFT
• CREDIT LOANS
HIRE PURCHASE
• Hire purchase means a transaction where goods are purchased
and sold on the terms that
1)payment will be in installment
2)possession of goods is given immediately
3)ownership remains with sellers till the last installment paid by
buyer
4)the seller can repossess the good in case of any default
5)each installment will be treaed as hire charges till the last
installment
RIGHTS OF HIRER
• The hiree (vendor) can not terminate the hire purchase agreement
The right to repossess the goods

• The hirer has a right of receiving a statement

• Excess payment made by the hirer will be returned by the owner to


him
installment system under hire
purchase
• It may be of two types

1) Conditional sale

2) Pledge or hypothecation
Overdraft/demand loans

• Under an overdraft interest is charged on the amount actually


utilized by individual customer. overdraft facility is provided against
the security of life insurance policies, fixed deposits, govt. securities
etc.
1) Loan against equitable mortgage of immovable property:
.

2) Loan against NSC/IVP/KVP:


3) LOANS AGAINST LIFE INSURANCE POLICIES:
In this loan is advanced either in form of demand loans or overdraft as 80% to 95%
of the surrender value to be ascertained from insurance company. the policy has to
be assigned to the bank at the time of taking credit against policy.the interest rates
will vary between 11% to 12% p.a.

4)Loan against RBI relief bonds


Banks and non banking finance companies also provide loans against the
security of RBI relief bonds to the individual in order to meet their
personal/business needs and contingencies. the loan is provided in form of term
loans or overdraft. The term loan agreement may provide for the submission of:
1) delivery letter
2) transfer deed
3) endorsed bonds
4) depository participant note
• Loan against shares and debentures:
finance is provided to the individual of high credit
standing against security of fully paid shares and debentures
held by them, in their own name, kept in physical or
dematerialized form.
Procedure for granting finance
A. Pre sanction stage
1. collecting credit information
2. receiving of application form
3. analyzing customer’s credit worthiness
4. accepting/rejecting applications
5. entering into a contract
B. Post sanction stage
a) submission of documents
b) payment of credit/finance
c) payment of installments
Terms of financing
These include the following:
1. Amount of loan/credit
2. Margin requirements
3. Security
4. Period of finance
5. Rate of interest
6. Fees and charges
7. Mode of payment
8. documentation
Purpose of Raising Finance
Housing Finance
It refers to providing finance to the
individual or group of individuals for the
purchase, construction or related activities
of house/flat etc. The housing loan is a
type of instalment credit which forms the
largest single source of housing finance.
• The housing loan can be availed for
following purposes:-
• Construction
• Extension
• Purchase
• Combined loan for purchase of plot and
construction
• Acquired house through cooperative
housing society
Rate of Interest
• Fixed rate of interest loan
• Floating or variable rate of interest loan
Charges & Fees payable
• Processing fees
• Search report charges by the advocate at
the time of sanction
• Insurance charges
• Fine for non-payment of late payment of
instalments
Security for the loan
• Primary security
• Collateral security
• Interim security
Institutions providing housing
finance
• IDBI
• HDFC
• ICICI
• SBI
• LIC Housing Finance
• Tata Home Finance
Parameters of the best
house loan
• Lower interest rate
• Income tax incentive
• Longest tenure
• Lowest margin
• Complete doorstep service
• no pre-payment charges
• Discount on processing fee
• Concession in credit card/ ATM card fees
Educational Loans
The prime aim is to make careers
happen. The no. of students seeking
admission to professional courses is
multiplying every year. If one has the
ambition and drive, the banks will take
care of finances involved.
Eligibility Criteria
• Should be an Indian national
• Belongs to the age group of 16-40 years
• Has secured admission in a
professional/technical course,
• foreign university/institution
• Should have secured minimum 60% marks
in the previous qualifying examination
Objectives of finance
• To finance all fees
• To meet expenses
• To provide financial assistance
• To cover course fee, hostel and mess
charges
Processing fees
SBI, CBI, BOB – do not charge any fees
HSBC and Bank of Punjab – 1% of the loan

Repayment Period
5 -7 years after commencement of
repayment
Automobile Finance
Under the banks auto loan scheme there
is a vehicle loan for every class i.e. 2
wheeler’s loan, 2nd hand car loans, new car
loan. The market for auto loans is large
and lot of opportunity exists there for the
banks and other finance companies who
by adopting customer friendly policies and
mass advertising can surely make auto
loan scheme a success.
Eligibility
• Permanent employees of govt.,
public/private sector with minimum of
3years service.
• Professionals and self employed such as
doctors, CASs, MBAs etc.
• Persons engaged in agricultural and allied
activities.
Purpose

Auto loans are extended for the purchase


of vehicle both for personal and
professional use.
Type of loan
Finance is provided in form of term loans
extending for a period from 1 to 5 years.
Rate of interest
Varies from bank to bank
Insurance
A insurance policy is taken for market
value or 10% above the loan amount
whichever is higher.
Processing Charges
Most of the banks do not charge any
processing
fee, or Rs. 250 to Rs. 500 may be collected
as one time fee from the customers.
Personal Loans
General purpose loans are advanced to
the individual to meet personal expenses.
Thus, with such easy finance facility, a
consumer can buy whatever he has in
mind.
Eligibility Criteria
• Salaried employees
• Self employed professionals such as
Doctors, CAs, MBAs, etc.
Loan amount
Minimum – Rs.25000
Maximum – Rs. 10,00,000
Other features
• No security or guarantor required

• Repayment period 12 to 48 months

• Speedy approval
Finance to meet Festival
Expenses
The lower or middle income group of
individuals who cannot satisfy the
requirements of the personal loan scheme
seek financial assistance from the banks
for short duration to meet expenditure
relating to a festival. The bank may charge
nominal fee of Rs.100 per application.
Eligibility Criteria
• Employees of govt. / Profit making Public /
institutions. Etc. with a minimum of 2
years service.
• Self employed persons
• Persons having regular source of income
from verifiable sources like pension and
interest from govt. securities etc.
Holiday Finance
Today, consumer who finds himself unable
to meet the cost of package gets ready to
accept the option. For ex, SOTC’s
European tour package is priced at over
Rs.76,000.
Finance for Medical
Treatment
It is very difficult for individuals especially
the salaried class to arrange funds at short
notice to make payments to hospitals.
Banks extend loans to meet such
exigencies. Loans are available to all such
patients who are suffering from diseases
where mortality probability is low and the
patient emerges as a healthier person
after treatment.
Benefits of Consumer
Finance
• Rising standard of living
• Forced savings
• Help consumes meet emergencies
• Increase in demand for physical goods
Thank-You