Taking out a loan for eco-friendly renovation work or the purchase of an electric car? Consumer credit, a valid option.

What exactly is consumer credit?

To put it simple, it is a loan that you take out to buy goods or services. It has a different purpose than a mortgage, which is used to finance the purchase or construction of real estate: a house or an apartment. From a legal perspective, consumer credit is limited to these three forms:

Did you know that 65% of Belgians have at least one of these types of loans in progress?

We all know that it is essential to live more sustainably. What role can consumer credit play in the ecological transition?

Indeed, this is where I see a useful role for consumer credit. Suppose you want to make ecological renovations to your home, such as insulating your roof, installing a heat pump, solar panels, or a home battery. Or if you are considering buying an electric car and a home charging station. These are expensive equipment. If you don't have the funds for these purchases, you would have to save for a long time. By taking out a loan, you can start benefiting from these investments from day one. We see that these loans are gaining popularity: there are now nearly three times as many loans for eco-energy investments as there were five years ago.

What are the advantages?

You can take out this loan for a relatively short period, for example, 1 to 3 years. Mortgage loans, which help you pay for your home, come with additional costs, such as notary fees and mortgage registration fees. With consumer credit, there are no extra costs. Another advantage is that this type of credit is quick to set up: in most cases, it only takes 24 to 48 hours for everything to get started. And, of course, you can immediately benefit from your purchase without having to save for months and months. The benefit of investing in eco-energy devices is that they pay for themselves over time, and after the repayments, they become profitable.

And the disadvantages?

Deferred payment has its price, of course. You know the warning: borrowing money also costs money. It's a type of loan that is more expensive than a mortgage loan. Furthermore, the amount it allows you to borrow is limited. Few credit institutions are willing to lend, for example, 100,000 euros unless there is collateral such as the financed car. Another point to note is that taking out a consumer credit requires certain financial skills to manage the credit properly. This can pose risks to some consumers as credit lines remain open for future use. Financial expertise is necessary to manage a loan properly. It's important to realize that such a loan is essentially a debt that you repay with an additional cost.

 What should you watch out for when you want to take out such a loan?

To be well-informed and understand what you are signing. You need to know the interest rate you will have to pay. This is expressed as a percentage: the Annual Percentage Rate or APR of consumer credit. This APR includes all costs related to the credit. This allows you to know how much you will ultimately pay.

What happens if you cannot repay?

If unforeseen circumstances arise, known as 'major life events,' such as illness, divorce, or job loss, you may not be able to repay on time. In this case, we advise you to contact your credit intermediary as soon as possible. Agree on the amount you can afford to repay monthly. You may then potentially get a new contract with a longer term. Unfortunately, in Belgium, lenders are not allowed to offer customers a payment deferral in case of repayment problems, as they were able to do exceptionally during the coronavirus crisis.

As a consumer, am I protected by the law?

The legislation is very protective of consumers, which is a good thing. First of all, the credit intermediary follows ethical guidelines: when applying for credit, they will ask for your income and check your repayment capacity. Based on this, they will judge if you can repay your loan. They must also provide you with sufficient information about the lender: who they are and what is the accreditation number of that institution.

Would you advise your adult children to buy on credit?

I would say: if you don't really need it, think twice before buying on credit. I wouldn't buy a luxurious sofa or an expensive phone on credit. However, if you want to make sensible energy investments in your home, it can certainly be useful because you can benefit from them immediately, and these ecological investments pay for themselves."