Lending and financing is part of the core aspects of maintaining the momentum of daily lives, and by extension, the economy. Residents of every country have different preferences of borrowing money depending upon their unique cultures and financial policies. For example, in the U.S. standing at a mammoth $8.4 trillion, mortgages form the largest lending sphere in the financing market. This makes for a stark difference when compared to one of the more popular loan policy in France. The most common form of loan in France is a prêt personnel, which is usually granted for any period length from three months to five years, and for any purpose the borrower sees fit. There are a great many types of lending in different countries, and each with their sub categories, however, this article will attempt to scratch the surface of some of the common types of lending that take place in some of the largest economies of the world.
United States of America:
The first country to make it in this analysis is the U.S. where 74% of all consumer debt is attributed to secured loans. This means that these loans have a definite end after a specific commodity is paid off. The loan is usually secured against the product that is being purchased by the borrower. In case of a breakdown of the financial agreement, the financer could repossess the property.
However, this figure is misleading as the sheer amount of mortgages have summed up to be the largest portion of secured loans at $8.4 trillion by the end of Q3 of 2016. The most common loan taken out by Americans every year actually comes from the 26% portion of consumer debt. This portion consists of revolving credit that is repeatedly available as periodic repayments are made to lenders. The most common type of revolving loan would be credit card debt with 174 million credit card users according to the latest data available. Compared to the nearly 75 million home owners who have had or still have a current mortgage, it is obvious which type of lending is more popular in the country.
As mentioned earlier, the most common type of loans taken out in France are le crédit de consommation or unsecured loans. These loans form the bulk of borrowing in the country and the rate of lending has been increasing for the past several years. By the end of Q3 in 2016, the lending frequency of these types of loans had increased by 1.03% as compared to the same period during the last year.
According to a French market analyst, these types of loans generally have an interest rate at 7%, but this could be considerably higher if the amount borrowed is less than €1500. Some banks and financers have been offering their customers loans at a lower interest rate as well, however, according to experts, administration fees make up for most of the loss in interest.
Traditionally there has been a balance between the different types of loans taken out in Germany. However, with the historically low interest rate, more people are taking up mortgages now. After a long period of being stagnant, the German housing market has experienced a resurgence that was first observed in the second half of 2015. This has in turn led to rising housing prices, lower number of people owning a house outright, and a sharp increase in the number of people taking out mortgages. According to government figures, the number of Germans taking out loans to buy house increased by 3.7% in Q2 of 2016 compared to the previous period.
Possibly the most common type of loan taken out in Germany in 2016 is the Fixed Interest Loan. In this type of loan, the instalments remain the same throughout the repayment period. However, initially the interest portion of the instalment is relatively high and the repayment portion of the instalment is kept low. This a fairly flexible type of loan policy and the borrower has a considerable degree of control on how they wish to structure their repayments as well as the term period.
Out of the $1.5 trillion outstanding consumer loans in Canada in 2016, nearly 77% of that accounted for mortgages according to Statistics Canada. However, as with the case in the U.S. the most common type of debt is still the credit card policy with 90% of Canadian adults owning a credit card. The average Canadian has more than two credit cards with a total circulation of nearly 75 million active cards in the country. Although, there is a small increase from the number of cards that were active in 2014, the amount of spending has increased considerably by 7.16% on a year- on- year basis.
There is a general indication that consumers are taking out more loans than before due to the improving economic environment. However, the average borrower also seems to be more aware of their financial circumstances as the number of bankruptcies filed in these countries have either stayed constant or even reduced.