Distinction between the different types of consumer credit

Here’s the different types:

Opening credit

Opening credit

It is a credit agreement offering the ability to a borrower to withdraw a sum of money, purchasing power or any other means of payment made available to him by a lender, in particular with the help of a payment instrument or otherwise.

These sums must be reimbursed according to contractually agreed conditions.

The reimbursed sums can be withdrawn by the borrower again (credit of the “revolving” type).

If it is not possible to make a new withdrawal only with the prior agreement of the lender or compliance with conditions other than those initially agreed, then this withdrawal is considered a new credit contract.

Thus, the opening of credit differs from a loan by its mode of operation: a credit opening can be the subject of a new withdrawal, a loan not.

The duration of a credit opening is generally indefinite, but a repayment plan can be associated with it contractually (minimum periodic repayment) and there is an obligation to reset the balance to zero within a specified period (zeroing).

Example: a lender concludes with a consumer a contract for the opening of credit up to a fixed maximum amount, which stipulates that the consumer must not reimburse payments and withdrawals of money in one go (for example at the end of the month) but that the payments are spread over time, therefore over several months. These expenses will be debited from the consumer’s account which will have a negative balance, which will be reimbursed each month up to the minimum amount determined contractually.

The consumer always has the possibility of reimbursing more than the minimum contractual amount. All sums reimbursed by the consumer can then be withdrawn/used again.

The overdraft facility on an account

The overdraft facility on an account

It is a form of credit opening linked to a payment account, in which the lender explicitly allows a consumer to have funds that exceed the available balance of the account.

Example: a cash facility of 1,500 USD which is linked to a current account.

Book VII also distinguishes the category of “overruns”, which are in fact overdraft facilities tacitly accepted by the lender.

Overrun is defined in particular as a tacitly accepted overdraft facility whereby a lender authorizes a consumer to have funds that exceed the available balance in the consumer’s payment account or the agreed overdraft facility.

Installment sales (VAT)

Installment sales (VAT)

It is a credit agreement which relates to the acquisition of goods or the provision of services sold by the lender or the credit intermediary and the price of which is paid in periodic installments.

Example: the acquisition of a car whose price is not paid in one installment but by monthly installments.

The installment loan (PAT)

The installment loan (PAT)

It is a credit agreement under which a sum of money or another means of payment is made available to a consumer who undertakes to repay the loan by periodic installments

Example: an individual requests a credit for the financing of a new kitchen.

This form of credit is often used for:

  • face unforeseen costs, for example for family events (such as a wedding), paying taxes or inheritance tax;

The purchase of :

  • new or used private vehicles;
  • private equipment (furniture, television, pc, ….);
  • real estate (however without mortgage or mortgage mandate or promise, which is governed by the chapter of Book VII of the Code of Economic Law relating to mortgage credit).

Leasing

Leasing

It is a credit contract by which one of the parties undertakes to provide the other party with the enjoyment of tangible personal property at a determined price which the latter undertakes to pay periodically.

In this way, the consumer is assured of being able to use the goods for an agreed period by means of periodic payments.

Special note: the contract includes an explicit or tacit offer to purchase. The credit contract provides for the possibility of acquiring the property held in use during the course of the contract or at the end of the latter.

It is, in a way, a form of “leasing”, but reserved for individuals, for non-professional use.

Example: a leasing contract for a vehicle (but reserved for individuals, for non-professional use).

The lessor is to be considered here as the lender.

The official term used is “leasing” (for individuals).

We also speak of “hire purchase”, because the financing is based on a rental contract. This type of credit is not widespread in Belgium. 

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