What is a consumer credit under the law?

A consumer credit is a credit granted to an individual for personal use by a trader and is covered by consumer credit legislation.

When must a lender conduct a creditworthiness assessment?

A lender must conduct a creditworthiness assessment before granting a consumer credit, to ensure the consumer is able to repay the loan.

How does the right of withdrawal work for a consumer credit?

A consumer can withdraw from a consumer credit within 14 days of entering into the agreement and must repay the borrowed amount and accrued interest without undue delay.

Consumer credit

Consumer credit refers to credit extended to individuals and is subject to extensive legislation.

Glossary
Consumer credit

Explained – what does consumer credit mean?

A consumer credit is a loan or line of credit granted to an individual for personal use, for example hire purchase, overdrafts or unsecured personal loans. The definition of consumer credit is central to financial regulation as it engages both consumer protection and the stability of the credit market. Across Europe, the area is largely governed by consumer credit legislation based on the EU Consumer Credit Directive. The rules cover, among other matters, pre-contract information, creditworthiness assessment and the right of withdrawal for consumers. Consumer credits are therefore a key feature of both banking and finance law.

When does consumer credit become relevant?

The issue arises when individuals take out loans or are granted credit by banks or other lenders. This may include instalment plans for goods, credit cards or other loans such as mortgages. For businesses, it becomes central when drafting terms, meeting consumer credit information requirements and defining responsibilities towards consumers.

Illustration of consumer credit agreement with calculator, payment card and financial chart, symbolising consumer loans, interest rates and credit law.

Points to consider for consumer credit

To handle consumer credit correctly, both lenders and consumers must adhere to a set of fundamental rules and obligations.

Ensure a creditworthiness assessment is conducted in line with legal requirements before granting credit.
Inform the consumer of the annual percentage rate and all costs of the credit.
Provide clear information on the right of withdrawal and conditions for early repayment.
Adjust marketing so that it is not misleading or unclear.
Document all contractual terms in writing in a way that is understandable to the consumer.
Check that contractual terms do not conflict with mandatory consumer protection legislation.

Following these points strengthens legal certainty and enables consumer credit to be offered in a sustainable and lawful way.

Consumer credit

Why is consumer credit important?

Consumer credit is important because it enables individuals to finance goods and services. At the same time, it entails financial risk for both the consumer and the lender, which has made clear consumer credit regulation necessary. The statutory balance between access to credit and protection against over-indebtedness is therefore central.

Regulation of consumer credit strengthens consumer protection through requirements on consumer credit information requirements, creditworthiness assessment and the right to withdraw. These mechanisms contribute to a more predictable and secure credit market in which consumers can make informed decisions. For companies, consumer credit compliance is a decisive factor for trust and long-term customer relationships.

With effective regulation of household credit and consumer credit agreements, not only are fair terms maintained but stability in the financial sector is also supported. This creates confidence for consumers, fosters sound competition and allows lenders to operate in a market with clear rules of the game. The definition of consumer credit is therefore a foundational concept for policy, supervision and practice across Europe.

A consumer credit is a credit granted to an individual by a trader and is covered by consumer credit legislation.

A lender must always carry out a creditworthiness assessment before a consumer credit is granted. The purpose is to ensure that the consumer is able to repay the loan.

A consumer has the right to withdraw from a consumer credit within 14 days of entering into the agreement. Repayment must then be made without undue delay and includes both the borrowed amount and accrued interest.

Consumer credit legislation provides protection when consumers enter into credit agreements. It ensures clarity of information and that lenders assume responsibility. Key elements include:

Requirements for clear and understandable information.
Mandatory creditworthiness assessment before approval.
Rights to withdrawal and early repayment.

The law applies to several types of agreements, including hire-purchase, credit cards, overdrafts, mortgages and unsecured personal loans. The aim is for all forms of credit to individuals to be subject to the same protections and requirements across Europe, in line with the eu consumer credit directive.

The main difference is that consumer credit is aimed at individuals, while business credit is aimed at legal persons. Consumer credit is subject to mandatory protective rules intended to protect consumers. Business credit is regulated more by freedom of contract and market practice, meaning less statutory protection but greater flexibility for the parties.