Looking for cash to offset your bills can be frustrating, especially when it is an urgent need. When you’ve checked everywhere and can’t seem to find a way to meet that pressing need, an option that you can take advantage of is consumer loans.
If you’re one of those asking the question, what is a consumer loan? (hva er forbrukslån?) then you are in luck as we will be discussing this topic in some detail in this article. We shall also provide other valuable information that will help you make the most of this type of loan.
What is a Consumer Loan?
This is a type of loan that customers get for specific purposes. This means that while a customer is applying for this loan, a specific purpose is tied to it. This is the general description of this type of credit facility.
As with some other types of loans, this can be secured or unsecured. Over time, this has become a popular type of credit because customers find this to be an easy way out of financial tight spots. It also helps that there are now several lenders that potential customers can go to for the purpose of accessing this financing.
Let’s now proceed to look at the different types of consumer loans available, the two main classifications of this loan, factors to consider when applying for it and what may be required of you. We will discuss all of these in detail as we proceed in this article.
Classification of Consumer Loans
Like we stated earlier, there are two broad classifications of the consumer loan. These are the secured and the unsecured types. Let’s briefly look at the difference between these two.
Secured Consumer Loans
The first category, which is the secured variation, refers to all classes of consumer loans that can only be granted to customers who are able and willing to put up an item of value as collateral. This can be a car, a home, jewellery, stocks and bond, basically anything that has value.
This collateral acts as security for the funds that the lender will be releasing. Should the borrower default in their repayment obligations, the lender is empowered to use this asset as settlement for the debt.
Unsecured Consumer Loans
Unsecured loans, on the other hand, do not require you to provide any asset as collateral before your application will be approved. This type of loan relies more on the applicant’s credit score than any other factor.
This is a very common option because most borrowers are either not willing or not able to provide any form of collateral. The trade-off here is that you may not be able to get very large amounts approved and the interest rate will be higher than what you’d have paid on a secured loan.
Types of Consumer Credit
The following are the types of consumer loans available:
This type of credit facility is specifically used for education purposes. This could be for payment of tuition, book purchase, or any other related expenses. This helps students in their educational and career pursuit. Repayment starts after completion of the course of study.
This is one of the most common types of consumer loans available today. It’s a form of plastic money, that is, a plastic card that allows a borrower to buy goods and services. The card is usually issued by a credit company and set to grant the holder access to a maximum amount of money. When the limit is reached the card holder is expected to pay back the loan. If it is not re-paid within the stipulated it can attract a penalty.
Home Equity Loans
This type is quite different from a mortgage. It involves using the equity value of your home to borrow money. This could be specifically for renovating the building or making some changes to it.
Just like other consumer loans, this type is particularly given for the purchase of a new home or property. This is a usually a long-term credit facility for which the applicant’s credit score is a major consideration factor.
This type of credit facility allows the borrower to use the borrowed funds for any of their personal needs. Unlike other variations of consumer loans, this is not restricted for use for a specific purpose. It’s simply meant for any use that can be classified under personal.
As the name implies, this is a type of financing provided particularly for the purchase of a vehicle. There may also be variations that can be used for repairs or maintenance of automobiles. This type of financing can usually be gotten from most car dealerships though it will be backed by a financial institution.
Factors to Consider When Applying for a Consumer loan
The following are the factors you need to consider when applying one:
The Amount You Need
How much will be enough for the need at hand and how much is available for you to borrow? This is the first factor you need to consider. The offers available to you may be more or less that what you need. This is because offers will be determined by your credit score and credit history. Even if you are offered more than you need, it’s wise to only take what you need.
The interest rates on loans vary depending on the lender of choice. Choosing an offer with a low interest rate makes it easy for you to repay the loan. So, when applying for any credit facility, compare different offers to find the best option. If you need more information on interest rates, you can visit: https://www.investopedia.com/
This refers to the length of time available for you to repay the loan. If you are going to repay in monthly instalments, how many months will it take to pay up the credit? As you compare options, check for offers without penalty for prepayment. This will help you pay it off within a short period.
Ensure that the monthly instalment is not more than what you can pay from your income. You need to plan properly and work within your budget, balancing your income, expenditure, and loan repayment.
As mentioned earlier, your collateral is an asset which has sufficient value to be used as security against the debt. Before applying for a loan, confirm whether or not it requires collateral. If it requires one, ensure that you plan properly. Do not hurry to just go for any loan offer. Understand the terms and conditions involved.
What are the Requirements?
Before you can obtain a consumer loan, the following may be required of you:
- National ID
- A good credit score
- Verifiable means of income (employment of business)
- A suitable debt-to-income ratio. If your ratio of debt to income is high, it can affect the approval of a credit.
- Meeting the minim age requirement
These are some of the requirements needed for a consumer credit. If you need more information about your eligibility status, you can check here.
We have discussed what a consumer loan is in this article. We have also explained the types, forms, and factors you need to consider when applying for one. With the information we’ve shared in this article, you should now be well informed regarding this credit facility and be well positioned to make the most of it should you decide to go for it.