Consumer Loan: All You Need to Know
Consumer Loan: Taking a loan is often necessary when we have to deal with some expenses that exceed the amount of money we have at hand. In most cases, when personal needs arise, the most common loan that people opt for is consumer loans.
It might interest you to know that not many who have taken this loan have adept knowledge about it. Hence, we have taken it upon ourselves to write this article to arm you with the important need-to-know about forbrukslån (Norwegian for consumer loan).
We believe that at the end of the article, you will have sufficient knowledge about this topic which will help you get the best deal when you decide to take a consumer loan.
Without further ado, let’s get started…
What a Consumer Loan is
A forbrukslån is a special kind of credit that is given to individuals to enable them to fund some particular kinds of expenditure. You can simply define it as a loan given by a lender to a customer.
This loan could either be secured or unsecured. What do we mean by this? Well, keep reading…
Secured Consumer Loan or Unsecured Consumer Loans
Forbrukslåns are divided into two kinds which are secured and unsecured. The security the lender enjoys when they credit an individual is what determines where the credit belongs to. Let’s examine this further, shall we?
Secured Forbrukslån
When we talk about secured loans we are talking about those that are supported with the use of collateral(s). What we mean is that the customer is expected to offer some of his assets that are of equal value or more. The asset will then be possessed and liquidated by the creditor if the individual defaults repayment of the credit.
The creditor enjoys security in the sense that they have a means of recouping their money should the borrower fail to make repayment. This also reduces the risk that the creditor faces.
While having to tender collateral might not sound appealing to the borrower, there are perks and advantages when one opts for a secured consumer loan. One of them is that the borrower can borrow a larger amount of money. Hence, an individual who has large expenses to cover can easily get the funding they require via this credit.
Also, if you choose this, you get to enjoy a longer period of repayment. What that means is that the period that you are required to pay back the money is much longer when compared to an unsecured consumer loan. Therefore, you have enough time to plan for and execute the repayment.
Furthermore, the interest rate they charge is lower. This is an advantage especially if you took a huge loan. This will then save you from having to accrue enormous interest apart from the principal amount you borrowed.
We need to mention that the reason the creditor allows an individual to borrow a large amount, charge a low-interest rate, and offer an extended repayment period is because of the collateral. Hence, these benefits are dependent to a large extent on the value of the asset which is offered as collateral. Visit https://www.forbes.com/advisor/loans/what-is-a-secured-loan/ to learn more about secured loans.
Unsecured Forbrukslån
At this point, you should have been able to deduce that unsecured consumer loans are those that aren’t supported with collateral. That means you don’t have to offer your asset as collateral.
Hence, the creditor is not secured and is exposed to a higher risk level. Therefore, it becomes difficult for the lender to recoup their money when the borrower defaults payment.
Although you get to keep your asset out of the deal and won’t lose it if you fail to repay the money when due, there are some downsides attached. Chief among them is that you cannot borrow a large amount. Also, the repayment period is shorter and the interest charged is much higher.
Now that we have discussed this, let’s take a look at the categories of forbrukslån…
Forbrukslån Categories
The following are the categories of consumer loans:
Open-end
Another name for this credit category is revolving credit. The reason it is called that is that the loan gotten can be used for purchases of any kind; hence, there is no restriction as to what you can use it for.
The minimum loan amount, as well as the interest, must be repaid before a predetermined and agreed date. Generally, this credit category is unsecured. Therefore, the borrower must pay interest on the loan if they are unable to pay the money in full before the due date.
Credit cards operate under this principle. When you get a credit card, you can use it for any kind of purchase. However, you are expected to pay the balance before it is due. Failure to do so will cause interest to be charged on the balance. This will continue to accrue until the amount and interest are paid off.
Closed-end
Another name for this credit is installment credit. The reason it is called that is that the loan gotten can only be used for a certain type of purchase. Hence, you are limited as to what you can use the money for.
For this credit category, you have to pay fixed monthly payments within a time. This loan is usually secured. As a result, if you default the installment payments, the creditor can possess the collateral and then liquidate it to get their money back.
Consumer Loan Types
The following are the types of forbrukslån:
Personal Forbrukslån
This is the most common of the lot since banks and financial credit institutions, offer it. You can use the credit for anything you want; hence, falls under open-end credit. For you to get this type of loan your credit score must be good.
You are allowed to borrow up to several thousand in dollars but it is dependent on your credit score as well. As for the period of repayment, it depends on the amount you intend to borrow, and who you are borrowing from.
Mortgages
Mortgages are another common type of consumer loan. A good number of folks in the U.S. were able to purchase their house with the aid of a mortgage. This is a closed-end credit because the money borrowed can only be used to fund the buying of a house.
After the loan has been approved, you are required to make installment payments to offset the balance. If you default your payment, the lender has the right to seek a possession order from the court. When this is granted, they can take possession of your house.
Line of Credit
This revolving credit is well known because it is what credit cards operate on. You are allowed to borrow money as long as you don’t default payments.
Auto Forbrukslån
This credit is specifically used to purchase a vehicle. It is also a closed-end forbrukslån since you can only use it for one specific purpose. This loan can be given by a wide range of creditors including car dealerships.
While taking this kind of credit from a car dealership might look appealing, you mustn’t put pen to paper without finding out about the terms and conditions. You should also lookout for the interest rates as well as all kinds of hidden charges.
Student Forbrukslån
Students and their families can benefit from this kind of loan. This is available majorly to college students in the U.S. You could either apply for a Federal or State student forbrukslån.
While you should pay careful attention to the interest rate and other requirements attached to both credit sources, you should pay more attention to the one from a State. Federal credit can be forgiven on certain grounds and reasons. The same cannot be said of those from a State.
