Consumer Credit

consumer credit

Short- and intermediate-term loans used to finance the purchase of commodities or services for personal consumption. The loans may be supplied by lenders in the form of cash loans or by sellers in the form of sales credit. Installment loans, such as automobile loans and credit-card purchases, are paid back in two or more payments; noninstallment loans, such as the service credit extended by utility companies, are paid back in a lump sum. Consumer loans usually carry a higher rate of interest than business loans. See also credit.

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Consumer Credit 

credit granted to the population for purchasing consumer goods or services.

In capitalist nations, consumer credit is granted by commercial enterprises (in the form of deferring payment by the buyer for the purchase) and banks and other credit and financial institutions. The commercial enterprises that provide credit directly to purchasers then turn to the banks for credit. Thus banks are the basic creditors in the area of consumer credit. For instance, around 60 percent of the total consumer credit debt in the United States at the end of the 1960’s, counting direct and indirect crediting, was held by the commercial banks. As a rule, loans are granted for up to three years. The bank makes the loans at a rate of 10–12 percent per annum and often even more. This rate is a heavy burden on the consumers and creates colossal profits for the monopolistic banks.

Consumer credit in the capitalist nations, particularly in the United States, has steadily increased. At the end of 1970, the total debt of US consumers was $124 billion. Around 14 percent of the after-tax personal income of the US population is spent each year to retire consumer loans. The accelerated growth of consumer credit is related to the limited effective demand of the population and to chronic difficulties in selling goods under the conditions of modern capitalism.

Under socialism, consumer credit is provided to the population by the state, cooperative, and trade organizations for pur-chasing personal consumer products (such as refrigerators, television sets, radios, motorcycles, sewing machines, photo-graphic equipment, timepieces, rugs, and woolen and silk textiles). From 1961 to 1971 in the USSR, the volume of credit sales to the public in state and cooperative trade rose almost 3.4 times and in 1971 was around 3.8 billion rubles. Varieties of consumer credit include pawnshop credit and credit through mutual aid funds. In buying goods on credit, the purchaser puts up 20–25 percent of the price in cash. Depending upon the type of goods, the balance is paid over six to 12 months in equal installments. For certain goods, the repayment is extended up to two years. Interest for the credit is 1–2 percent per annum. Being a form of organizing earned income savings, consumer credit in a socialist society is aimed at providing the fullest satisfaction of the needs of the working people.

V. M. USOSKIN