Financial need is something that is universal to humans everywhere. Even people with high-paying jobs would sometimes have projects or needs that their income cannot cater to. In such situations, people look for other ways of financing their projects or meeting their needs. One such way is by taking out loans.
What is (hva er) a consumer loan? It is a financial product that is offered to consumers from banks and financial institutions to help them take care of daily expenditures or capital-intensive projects. In this article, we will discuss the basics of consumer loans.
Basics of Consumer Loans
There are many types of consumer loans, and they include personal, mortgage, auto, medical loans, and credit cards. Let us briefly examine each of these credit types: –
Personal Loan
This is credit that is given to a consumer to take care of personal expenses. This facility can be used to finance a home renovation, go on a vacation, or sponsor a wedding. This type of credit facility can be provided by credit unions, banks, or online lenders. It comes with a certain amount chargedas interest and has to be paid back within a specified duration.
Personal loans are in the category of unsecured credit as they are not backed by any collateral. They can be used for any purpose that the borrower chooses despite the purpose that was stated on the application.
Mortgage
This is a credit advance given to customers to acquire a home or real estate property. It is backed by collateral which means that the borrower puts down an asset of value that is equal to or more than the amount borrowed. In this case, the collateral is usually the home or property that was purchased with the loan.
In the event that the borrower defaults in the repayment of the loan, the house or property will be repossessed and used to offset the outstanding debt. This facility most often comes with a 15 to 30 years repayment duration.
Medical Credit Advance
Sometimes people have medical conditions that their insurance does not cover. On the other hand, there are those who do not even have health insurance. In these cases, one way that people offset their medical bills is by taking out medical loans.
This credit advance is not backed by collateral and oftentimes comes with a higher interest rate than forms of credit that are backed by collateral.
Students’ Loan
This is money advanced to students to help them finance their higher education. This money is used to offset tuition fees and other expenses incurred in the course of tertiary education. This loan can be gotten either from a private lender or from the government.
There are different conditions for government loans and private lenders. Some people can make do with just an advance from the government while others have to combine both options. You can visit this site for more info about this type of loan:https://thebestschools.org/
Auto Loan
This is money advanced to a consumer to purchase a car or automobile of any kind. Some banks extend this nomenclature to cover farm implements such as tractors. This type of advance is covered by collateral and this collateral is often the automobile purchased. This, therefore, means that the automobile can be repossessed if the borrower defaults on payment.
The loan duration can be anywhere from 2 to 7 years or more depending on the lender. The interest rate too varies depending on the lender and the terms and conditions.
Credit Card
This is a small metallic plastic card that is issued by either a bank or financial institution which enables the holder to buy items or pay for services on credit. It is also known as a revolving line of credit which has a billing date. What this means is that there is a stipulated date on which the holder has to pay an amount that has been agreed upon. Failure to pay the agreed-upon sum on the stipulated date attracts a penalty in the form of increased interest.
A consumer in the arrangement will always have a spending limit for every month or whatever period that is agreed upon by the issuer of the card. At the end of that period, the cardholder is expected tosettle up with the lender. So as long as the borrower keeps their end of the bargain, the lender will keep giving the cardholder this revolving credit facility.
Categories of Consumer Loans
There are two categories of consumer loans, and they are secured and unsecured loans. In the course of discussing the several types of loans, you will notice that we mentioned the ones that are backed with collaterals and those that are not. The ones that are backed by collaterals are the secured ones while the ones that are not backed by collaterals are the unsecured ones.
Secured Loans
These are credit advances that are borrowed and backed by a valuable asset of the borrower. In mortgage arrangements, the collateral is usually the home/property bought while in auto loans, the collateral is usually the automobile purchased with the money.
Taking out a secured loan is usually a riskier option for a borrower despite the fact that the interest rate is lower than with the secured option. This is so because the borrower stands the risk of losing their property to repossession if they default on payment.
Meanwhile, some lenders prefer to give out secured loans because it mitigates the risk for them in the event ofdefault by the borrower. Click here for more details.
Unsecured Loans
These are credit advances that are not backed by any collateral. This means that the borrower does not need to put down any asset before their application is approved. One downside of this type of credit facility is that the interest rate is usually higher than the secured option.
However, it may be the only way that some people will ever be able to access credit. This, therefore, makes it a viable option for many consumers. Personal, medical, and student loans are some of the options that are under this category.
Benefits of Consumer Loans
As mentioned at the beginning of this piece, people sometimes encounter difficult circumstances in which they need some help with financing. In these circumstances, people look for assistance in several ways and from different quarters. So far, we have examined one source of financial assistance which is a consumer loan.
Let us now briefly look at 2 benefits of this option: –
Freedom to Use the Money as Desired
This advantage applies mostly to personal loans. Most times, somepeople refer to personal loans as consumer loans. When borrowers apply for this credit facility, they are required to fill in the purpose for which they want the money. That however is a formality because they are not bound by law to use it for the purpose they stated.
So,let us assume that a consumer filled in home renovation for their purpose for a loan, they can decide to use the money to finance a vacation. What the lender is concerned about is the repayment of the money as when due.
Readily Available Financing
With a consumer loan, one can finance a project that is time sensitive. Let us say for example, you come upon a sales event at a dealership that offers a discount that you do not want to miss; you can take out an auto loan to get in on the deal rather than wait to save up money to buy the car. Thesame goes for a mortgage; most people cannot afford their dream home based on their income. A mortgage, however, helps them build or buy their dream home and then spread the payment over a period of years.
Conclusion
In this article, we have discussed some basics of consumer loans such as their definition, the types and categories, and the benefits. We believe that this brief article has given you the basic knowledge that you need about this financial product. To take advantage of it, make sure you research further to know how to go about accessing it so that you can make the most of it.
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