CONSUMER CREDIT

short- and intermediate-term loans used to finance the purchase of commodities or services for personal consumption or to refinance debts incurred for such purposes. The loans may be supplied by lenders in the form of cash loans or by sellers in the form of sales credit. Consumer credit in industrialized countries has grown rapidly as more and more people have come to receive regular income in the form of fixed wages and salaries and as mass markets for durable consumer goods have become established. Consumer loans fall into two broad categories: installment loans, repaid in two or more payments; and noninstallment loans, repaid in a lump sum. Installment loans include (1) automobile loans, (2) loans for other consumer goods, (3) home repair and modernization loans, (4) personal loans, and (5) credit- card purchases. The most common noninstallment loans are single-payment loans by financial institutions, charge accounts of retail stores, and service credit extended by doctors, hospitals, and utility companies. Finance charges on consumer loans generally run higher than the interest costs of business loans although the way costs are quoted may disguise the actual charges. This led the U.S. Congress to pass the Truth-in-Lending Act, which took effect in July 1969. An important provision requires lenders to state the effective finance charge in terms of an annual percentage rate, as a measure of the relative cost of credit in percentage terms, so borrowers may compare finance charges stated in different terms.