As an individual, having to meet up with a lot of responsibilities at the same time can be quite tasking. Sometimes the money we earn is not sufficient to do them. This is where the thought of applying for a loan comes in. Some may be discouraged from taking that step while others do to settle the pressing needs that arise.
The idea of applying for a loan is not bad in itself. What makes it bad and dangerous is when proper findings are not been made before application. Therefore, this article will walk you through what a consumer loan is, the types, and how to apply for one.
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What Consumer Loan is?
A consumer loan is given to individuals to enable them to finance some urgent types of needs by a financial institution. The loan can be either be secured or unsecured. Regardless of the type, the sole aim is to meet a specific need or needs.
Secured vs Unsecured Loans*
Before we look into the types of consumer loans, let’s understand what secured and unsecured loans are. This knowledge will help you know if the loan you intend to take is secured or unsecured. Furthermore, it will enable you to decide if it’s the right option for you.
A secured loan is backed by assets that can be used as repayment if the borrower fails to repay the loan. The amount given for the type is quite high and the repayment period is longer while the interest rate is quite low. This is possible because there is an asset that serves as backing. Therefore, the lender faces little or no risk if the borrower fails to repay as the collateral covers that.
For an unsecured loan, there is no backing with any assets or collateral. Therefore, the amount is not as high as that of the secured loan. Visit https://billigsteforbrukslån.com/hva-er-forbrukslån/ for more details about unsecured loans. Also, the repayment period is shorter, but the interest rate is higher.
As there is no asset or collateral, the lender faces substantial risk if the borrower fails to repay the money. It’s possible for the lender to be unable to recoup their money if the lender defaults on payments. Such an occurrence can be regarded as a loss for the financial institution.
Consumer Loan Types
The type of loan you take as a consumer depends on what you need them for. So, understanding the several types available to you is important. This is because it will help you avoid unnecessary interest rates or hidden charges that apply to it. With that said, here are the several types of consumer loans:
Debt Consolidation Loan
This takes combining two or more debts into one whereby the repayment period will reduce, the interest rate as well. Settling different loans at different interest rates can be tiring and this doesn’t give you a chance to be able to save. However, when they are merged, payment becomes easier.
Personal Loans
This is taken to settle any type of pressing financial need one may have. The interest rate on this type depends on your credit score. That means it is granted based on how efficient you have been in repaying past debts.
Auto Loans
This is taken when the borrower wants to purchase a car. Note that the car will be collected once you default on your payments. This type of loan is not only given by banks or credit unions, but it can also be given by the car dealer, but it comes with a higher interest rate compared to others.
Student Loans
Students in colleges or universities are given this type of loan to help cover the cost of tuition. This student loan comes in two types which are private and federal. It is preferable to go for federal funds as it comes with lower interest and a friendly repayment plan.
Mortgages
Mortgages are given to consumers to buy a house. The mortgage is tied to the home purchased which means there is a risk of foreclosure when there is a delay in payment. Amongst all types of loans, this seems to be the one with the lowest interest rate because it is secured.
Balloon Mortgage Loans
A balloon mortgage is given to a borrower that has very low monthly repayments or none at all. They are then required to pay off what is left in a single payment. The essence of this is that the borrower can pay back the debt without interest, but it is quite risky. One should only consider this if you intend to own a house for a short time and sell it off before the repayment period expires.
Home Equity Loans
Home equity is when one owns a home, and the equity is worth more than the debt owed. A consumer can borrow money based on that to assist in paying for a project they might be handling at the moment. Home equity is good for house renovation and paying off other types of debts.
Small Business Loans
For those starting a new business or wanting to expand their business, this type can be issued to them. It is granted according to the needs of the business. If you have a business plan with no capital, this is a good option for which you can apply.
Payday Loans
This is a high-interest, short-term loan that is designed to cover the gap from when one gets paid before the next paycheck is received. Those who apply for this type are workers who earn monthly. They use it as a means of survival before they get paid again.
Key Points to Note Before Applying for a Consumer Loan
Now that you know the types of consumer loans you can apply for, you might be wondering how to apply for one. Well, before you even begin the application process, there are some key factors you need to consider. This is because money is involved, therefore, there are certain rules and regulations these financial institutions put in place to avoid any loose ends either from them or the consumer. So as a consumer, these are some key points to take note of:
Calculate the Figures
Before applying for a loan, there are certain numbers you need to know. These numbers include the actual amount you need to borrow, the estimated interest rate, and any form of hidden charges such as registration fees, etc. Knowing all these will either put you on the go or make you halt the process and rethink.
Examine Your Credit History
Before taking the step to borrow money, make sure that you are creditworthy. Why is this important? Well, your credit history will determine whether the lender will even approve the loan in the first place. Furthermore, it also determines the amount you can get.
There are certain platforms that allow you to check your credit history or credit score in Norway. Therefore, locate such platforms and then review your credit score. If it is low, you’ll need to improve it to meet the requirements of the lender.
Evaluate Your Options
Just as the saying goes, don’t put all your eggs in one basket. In the same vein, you shouldn’t put all your hopes and focus on just one lender. You need to have at least 3 potential lenders on your list.
Once you have these names on the list, compare them. Your focus should be on their terms and requirements. This is important because it will help you to determine whether an offer is right for you, or there are better options. Proper evaluation will protect and prevent you from getting into a difficult financial situation.
Find out what their interest rates are? How long is the repayment period? Find out if there are any hidden charges.
Select Your Preferred Loan
Once the first three points have been carefully sorted, it is time to choose which type suits your needs. This is because you might get different interest rates and terms based on the credit union you choose. So, choosing one goes hand in hand with the financial institution you are applying to.
Select a Lender Then Apply
Once your research has been completed, select a lender that gives the most suitable offer and begin the process of application. Depending on your selected lender, the entire process of application may be done online. Although every lender differs, it is important to thoroughly go through the agreement to prevent any pitfalls or hidden charges.
Conclusion
Consumer loans are designed to make life easy when we need to take care of some financial obligations. While it might seem straightforward, it is possible to make a mess of things if someone is not properly informed. Thankfully, this article is designed to provide you with all the necessary information you need to know about these financial commitments. Apart from the information contained in this article, we recommend that you also consult a reputable financial consultant to advise you based on your unique financial situation.
