Credit products and personal lending solutions
Domain focus
This domain tests product knowledge and whether you can match a personal lending solution to a borrower's need, cost profile and risk.
Core products
- Unsecured personal loan: fixed sum, fixed term, usually reducing-balance interest; no asset security.
- Secured personal loan: lower rate because an asset, often a vehicle, secures the debt.
- Credit card or revolving credit: ongoing limit; interest charged on the outstanding balance; minimum repayments apply.
- Overdraft: short-term facility; suitable for timing gaps, not long-term debt.
- Debt consolidation: replaces multiple debts with one repayment; only suitable if the total cost and term are not harmful.
Worked example
A borrower has three debts: $6,000 at 19.9%, $2,000 at 22% and $1,500 at 18%. A consolidation loan at 13.9% over four years reduces monthly pressure. Reasoning: compare total repayments and fees, not just the new rate; if the term is extended from two to four years, total interest may still rise. Check affordability and whether the borrower will keep using the cleared cards.
Traps
- Comparing headline interest rates while ignoring fees and total cost.
- Assuming a lower rate always means a cheaper loan.
- Recommending consolidation without checking whether the underlying spending problem remains.
- Ignoring product suitability for short-term versus long-term needs.