Explanation of credit solutions to finance the needs of everyday life during the health crisis. While the Coronavirus COVID-19 continues to spread in France, households will sometimes face complex situations.
As a precaution, some will make the decision to buy more food and other consumer goods, which comes at a cost. Revenues will then be put to the test against these unanticipated additional expenses. To overcome these outflows, households may choose to turn to finance solutions.
The temptation of revolving credit: watch out for the interest rate
The first that can come to mind and that is compatible with the purchase of consumer goods is revolving credit. A number of households already have payment cards that directly integrate this reserve of money, also called permanent credit. These cards can be purchased from banks or stores.
Online offers also offer this solution. Its operation is simple and tempting with a credit card: when honoring a transaction, the user has the choice of paying in cash or on credit. The second option will automatically draw the reserve and the user will then reimburse this amount in the form of loan monthly payments. The loan is then released with rapidity foolproof.
However, this facility conceals particularly high-interest rates. Its excessive use is therefore strongly discouraged in order to avoid the risk of excessive accumulation of loan maturities. If the revolving credit can prove useful in the event of unforeseeable expenditure, the borrower must ensure reasonable use, otherwise, it can quickly jeopardize its ability to repay its monthly payments while realizing its expenses of daily life.
Taking out a personal loan: back to its principle
To obtain cash that can be used freely, the personal loan is a loan able to meet this need. Being part of the consumer credit family, it is distinguished by its unaffected nature. Indeed, the borrower does not need to provide quotes or justify the completion of a project when requesting a personal loan, unlike a car loan or a work loan by example.
However, this simplicity does not cancel the lender’s obligations in terms of risk management. Indeed, the bank advisor must ensure that the household has the financial capacity to repay, according to the terms of the contract, the amount borrowed. In addition, it is common for the rate structures of banks to be higher for a personal loan than for credit allocated to a project.
If it is thus entirely possible to take out a bank loan in order to pay for consumer products, it is recommended to be careful. The share of bank remuneration for personal loans and revolving credit, calculated by nominal interest rates, is much higher than traditional credit and can lead to deleveraging. They are therefore to be used as a last resort when it comes to buying consumer goods such as food products and rather favor cash payments.