Consumer debt can be defined as money, goods or services provided to an individual in the absence of immediate payment. Common forms of consumer credit include credit cards, store cards, motor vehicle finance, personal loans, consumer lines of credit, retail loans and mortgages. Given the size and nature of the mortgage market, many observers classify mortgage lending as a separate category of personal borrowing.
The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay overall. It includes interest, arrangement fees and any other fees and charges. Some of the costs are mandatory, required by the lender as an integral part of the credit agreement. Other costs, such as those for credit insurance, might be optional; the borrower chooses whether or not they are included as part of the agreement.
Interest and other charges are presented in a variety of different ways, but under many legislative regimes lenders are required to quote all mandatory charges in the form of an APR (annual percentage rate). The goal of the APR calculation is to promote “truth in lending”, to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products. Read more about APR