Consumer Lending: Meaning and Why people need it

Last Updated on Dec 11th, 2023

Everyone needs a little financial push now and then to meet their needs. Loans help to give such a push, but most loans are for business purposes and usually require a guarantee in collateral. Not every financial need is mainly for business, and so there’s a space for personal loans; consumer lending deals with this kind of loans.

What is Consumer Lending?

Consumer Lending refers to loan services provided for personal or household use. They are long-term loans made by banks and other financial institutions to individuals. These loans are generally unsecured as opposed to business or commercial lending, meaning they do not require collateral.

Why do people need consumer lending?

Consumer lending provides funds for personal, family, or household needs. Suppose Mr Johnson, a mechanic, seeks finances to pay for his children’s school fees or to pay for the rent — Mr Johnson would need a consumer loan provided by his bank or any other financial institution.

Where can one get consumer Lending?

Accessing consumer lending is not a difficult task, as consumer loans can come from a host of money lenders in Nigeria. These loan providers include financial institutions or other loan platforms such as PayLater and O-Kash. You also need to compare the loan from different lenders to see the one which you would prefer or favorable to you.

What are the types of consumer loans?

Consumer Lending provides consumer loans for many individual/family-related purposes. The most common types of consumer loans include:

  • Auto loans: These loans facilitate the purchase of cars for personal use.
  • Home loans: Also known as mortgage loans, they are used in payment of loans or house purchases.
  • Student loans: These loans help to pay for tuition or academic purposes.
  • Credit cards: Credit cards are a type of loan where borrowers have a limit to which they can spend on any purposes. The loan is repaid along with interest at a specific date.

Check out: 5 Good Reasons To Borrow Money – Why you need to start borrowing

Do consumer loans require collateral?

Consumer loans can either be secured or unsecured. Secured consumer Lending involves loans that are backed by collateral. In the event where the borrower defaults (not paying back the loan), the loan provider has something to take over or fall back on.

Unsecured consumer lending, however, is the exact opposite. This involves loans that are not backed by collateral. If the borrower defaults in payment, the lender has nothing to fall back on.

What categories of consumer loans are there?

Consumer lending involves loans that are either close-ended or open-ended.

Open-ended loans are loans given to meet any purposes up to a predetermined limit. At a specific date, the borrower has to make a payment on a minimum amount of the loan. Interest is charged on loan if the borrower cannot pay this back at the agreed time. An example of open-ended loans is credit cards. They are usually unsecured.

Close-ended loans are given for specific purposes. Usually every month, repayment of close-ended loans is made by instalments. Close-ended loans are typically secured loans.


Consumer loans are the best option if you’re on the lookout for quick ways to finance personal spending. Their primary appeal is the speed at which they are issued and the fact that most do not require collateral. If your are looking for a small or micro loan, you can read more about it here.

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