Consumer credit

A car, a washing machine, an English course, or the services of a professional – consumer credit can help you purchase goods and services that are important to you or your family, and give you access to cash when you need it.

Let's take a look at the features of this type of credit and the protections it offers.

What is consumer credit?

Consumer credit is a form of borrowing that allows you to purchase goods or services for personal or family needs. It includes several types of credit. The most common are:

• linked credit (also called point-of-sale credit), when the loan is granted specifically to purchase a certain good or service;
• unlinked credit, when the loan is granted without being tied to the purchase of a specific good or service (this includes personal loans and loans repaid through salary deduction such as the cessione del quinto);
• overdraft facilities on current accounts, when the bank - in exchange for a fee - agrees to make a certain amount of money available on your account for you to use when needed;
• revolving credit cards.

The amount you can borrow under consumer credit normally ranges from €200 to €75,000. Different rules apply outside this range.

To apply for consumer credit, you can usually go to your bank, the post office, or a finance company. In some cases, when buying in a shop, the seller may handle the credit application process on behalf of the lender. If the lender approves the application, they pay the amount directly, allowing you to take home the item and repay the loan in instalments over time.

Who consumer credit is for

Consumer credit is available to anyone who can provide proof of income, whether it comes from employment, self-employment, or a pension. Banks and finance companies usually require the borrower to be at least 18 years old, and not older than 75 at the end of the repayment period.

Before granting a loan, the lender will assess your creditworthiness, meaning your ability to repay the loan. To do so, they will ask for information about your income (such as your payslip), and may also consult public and private credit databases that record any existing loans you have and any current or past payment irregularities.

The costs

The main cost of consumer credit is the interest, which is the amount you pay to the bank or finance company in return for the loan. This cost is expressed as the nominal annual interest rate (TAN), which tells you how much interest you will pay per year as a percentage of the amount borrowed.

However, in addition to interest, you may also be required to pay other charges, such as fees (for example, for processing the application or managing the loan), taxes, and any insurance premiums. All these charges are included in the APR (Annual Percentage Rate of Charge) - known in Italian as TAEG (Tasso Annuo Effettivo Globale). The APR gives you the total yearly cost of the loan and helps you compare offers from different lenders. You will find the APR in the SECCI - the Standard European Consumer Credit Information form. This is a free document that the bank or finance company must give you when you ask for information about a loan and, in any case, before you sign the contract.

Risks

As with any form of borrowing, the main risk with consumer credit is that you may fall behind with your repayments or find yourself unable to repay the loan at all. This can be particularly problematic if you have several loans at the same time, as the monthly instalments may become unmanageable. If you start to experience financial difficulties, talk to your bank as soon as possible to try and find a solution together. If you miss a payment, the bank will usually charge additional fees and penalties as set out in your contract. So always read the terms carefully before signing.

You have the right to receive a full copy of the contract free of charge before it is finalised, with no obligation to proceed. This also applies if you are taking out the loan online through the lender's website.

If the information provided is not clear or is insufficient, you should contact the lender. They are required to provide support, at least during normal working hours, and offer direct, one-to-one assistance, even by phone.

It is important to assess whether the debt is affordable, both before signing the contract and during the term of the loan, as your financial situation may change over time.

Late or missed payments can negatively affect your credit score. Even if you change lender, your financial history remains recorded in databases that banks and financial intermediaries can access. A poor credit record may make it more difficult—or even impossible—for you to access new credit in the future.

Consumer credit protections

As mentioned earlier, consumer credit comes with more protections than other forms of finance, such as business or professional loans.

The most important protection is the right to withdraw from the contract: if you change your mind, you can cancel the agreement within 14 days of signing, without having to give a reason. If the money has already been transferred to you, you must return the loan within 30 days, along with any interest that has accrued in the meantime.

If the contract does not have a fixed end date, you can withdraw from it at any time, by giving up to one month's notice.

You also have the right to repay the loan early, either in full or in part. If you do, you are entitled to a reduction in the total cost of the loan, reflecting the shorter repayment period.

The bank or financial intermediary may charge a fee for early repayment, but only within the limits set by law.