The difference between the assigned loan and other conventional loans is that with the affected loan, the financing obtained by the consumer is exclusively for a particular good or service. While revolving credit, or revolving credit, is a sum of money that is made available to the borrower, with the revolving credit, the money reserve is renewed as and when the borrower makes repayments. The Personal Payday loan, meanwhile, is an unallocated loan. With this unallocated loan, the client borrows a certain amount of money, which he can use freely without having to justify his use of it with the financial institution that has granted it.
The assigned loan is granted for the purchase of a defined good or service
Thus, unlike the affected loan, for Personal Payday loans and revolving loans, there is no legal link between the purchased good and the credit put in place.
The assigned loan is granted for the purchase of a defined good or service. If for one reason or another, the property or service was no longer purchased, then the credit would be canceled. The assigned loan is granted by a bank or credit institution. The allocation of the loan may be made within the premises of the lending institution, or at the place of purchase of the good or the provision of service. When the purpose of the assigned loan is the purchase of a property, the repayment term of the affected loan is less than the life of the asset.
Today, consumer loans, and therefore the affected loan, are factors of economic growth. Indeed, the loan is an essential tool for the growth of many sectors of activity, including the automotive sector, furniture, appliances, computer …
Thus, the majority of these brands offer their consumers different ways of acquiring property via the loan assigned directly to the point of sale. Often, they offer this loan through a subsidiary that belongs to their group. It is for these brands to respond to consumer demand by offering them financing tools to acquire goods or services. The affected loan helps support household consumption, and thereby the growth of the economy.
Some figures, before and after the crisis
At the global level, the market leader for the affected loan is the United States, while at the European level, the leader is the United Kingdom.
After years of sustained growth, in 2008, outstanding consumer loans, and consequently impaired loans, declined due to the financial crisis. This crisis called “subprime”. This crisis, which began in the United States in 2007, had an impact on the European affected loan market as early as 2008. While France was considering facilitating access to credit, the subprime crisis has turned down the cards. Indeed, for years, the various credit institutions in the United States have organized the aggressive marketing of credits (mortgage, revolving …) without worrying about the solvency of their customers. But as long as interest rates were low, and the value of real estate increased, the massive use of credit had a positive impact on US growth, including support for household consumption. However, this growth was skewed and had a serious impact on the global economy. The losses related to the subprime crisis are recorded in trillions of US dollars.
Two simultaneous factors favored the crisis.
On the one hand the decline in the value of real estate in the United States, and on the other hand, the gradual increase by the FED (Federal Reserve System, Central Bank of the United States) interest rates. It must be said that with US mortgages, as the value of the property held by households increased, the household’s debt capacity also increased. Between 2004 and 2006, the Fed’s interest rates went from 1.25% to 5.25%. However, in the US market, borrowers generally financing at variable rate, this rate growth has quickly had a negative impact for borrowers. They suffered a rapid increase in their monthly payments. For households already in a precarious situation, very quickly, the increase in monthly payments took them by the throat. The number of lenders in default has increased very rapidly.
As of 2007, the default level was 15%. Many American households were evicted from their homes by banks that auctioned homes.
Many pension funds had invested in these deemed safe credits
The securitization of these credits by financial institutions has accelerated the contagion of the crisis to the world, and consequently its impact on the real economy. Many pension funds had invested in these deemed safe credits, because they were highly rated by rating agencies because of their multiple transformations. The Lehman Brothers bank is one of the symbols of the subprime crisis. This bank, which had been in existence since 1850, saw its value drop because of its investments in these credits, and the bank’s inability to find a buyer eventually pushed it to declare bankruptcy. If the securitization of these receivables had allowed some funds to increase their financial performance.
With the subprime crisis, and the resulting defaults, the value of these funds has fallen dramatically. Finally, the banks had to face huge losses, it must be said that banks held many funds containing these bad debts. This crisis has plunged their stock values, governments have had to intervene by setting up nationalisations, or recapitalizations … Contagion to the real economy has created, an increase in the unemployment rate, the decrease in household consumption, Savings growth, lower investments …
Due to the crisis, the legislator has implemented reforms, despite the fact that the Basel Committee set up Basel II in 2007, given the urgency of the situation, in 2009 the Basel Committee published Basel 2.5. Basel 2.5 aimed to strengthen banks’ own funds, especially on products such as securitization. The Basel Committee operating a continuous process, in 2010, this committee to present Basel III.
One of the consequences of the financial crisis is increased regulation for all loans. This was done in particular by regulating advertising. If before the professionals of the sector had almost all latitude to attract the customers, the European union decided to legislate. For example, the European Parliament and Council Directive 2008/48 / EC of 23 April 2008 on consumer credit sets out the legal framework for advertising on credit agreements. This directive has been transposed into French law, and published in the Official Journal on 2 July 2010.
The year 2015 was marked by the recovery of consumer credit in Europe. For the first time since the subprime crisis of 2008, the outstanding balance of all consumer loans has undergone a positive change.