CUSTOMER FINANCE AND

CREDIT CARD RATING

C

Unit 4
Factors influencing consumer finance:
 Marketing and Insurance of Consumer finance:
• The privilege of availing credit form a retail store is offer an attraction to consumer to
continue buying from the same store.
• This results in customer loyalty, which is advantageous to retailers. In other countries,
companies go to the extent of advertising in such a manner as to convert cash customers into
credit customers. In the event of promotion campaigning by finance companies, the demand
may come both from the existing customers with additional credit needs, and from new
customers.
• Customer finance insurance:
• It is a common practice in countries like US to grant credit insurance in respect of finance to
customer. This king of insurance is called consumer credit insurance. The insurance provides
a coverage in the eventuality of consumer default instalment payment.
Consumer Credit Scoring:
As part of the credit worthiness of a consumer, and for ascertaining the acceptability criteria of consumer,
some methods are used. Some of the common methods are:
1. Dunham Greenberg Formula: At this method points are allotted to various aspects of the consumer’s
loan proposal, the total being 100. an applicant is said to be good credit standing on a score of 70 points
or above.
• Specific fixed Formula: According to this method, a score of over 3.5 would indicate an excellent
borrower and a score of over 2.5 indicates a marginal borrower.

• Machinery Risk Formula: This method is prominently use in government offices for granting loans to
employees. According to this method, the loan amount to be sanctioned is determined as follows:
Down payment + (0.124X Monthly income) + (6.45 X length of service in months)
• 2,00,000+ (.124X20,000)+(6.45X50)
Following arguments can be in favour of consumer finance:
1. Realization of Dreams
2. Production in inflation Situation
3. National Importance:
4. Meeting Emergency:
5. Maximum of revenue
6. Large scale production
7. Exportation:
8. Enjoying possession
9. Enhance living standard
10. Effective stock management
11. Convenient mode
12. Compulsory saving
13. Accelerating industrial investment
Case against consumer finance:
• Artificial Boom
• Bad debts risk
• Costly credit
• Economic instability
• Insolvency
• Risk to traders
• Thoughtless buying