What are Consumer Loans?
Consumer loans are any type of loan that a consumer gets from a bank or loan institution that gives them money for any items they may want or need. These loans can be for homes, cars, medical needs, or just about anything else, and they can be secured by some sort of collateral or unsecured with no collateral.
There are many distinct types of consumer loans that you can get and many ways to get those loans. This article will share a few of those loans and ways to get them.
Types of Consumer Loans
- Mortgage – the type that helps you to acquire a home that you can live in or rent out. These are secured loans, which means that the lender can take your home if you do not make the payments. These loans are usually taken out for fifteen or thirty years and have lower interest rates than other consumer loans.
Mortgages can have fixed interest rates, or they can have variable interest rates. Fixed rates mean that the interest rate stays the same for the life of the loan. Variable rates mean that the interest rate changes – either up or down – during the term.
Once you learn the information about a mortgage you can do the next step. You begin the process of getting a mortgage by applying for the loan. The lender will look at your application and then ask for some sort of proof that you have the capability to pay according to the agreed terms. This can mean needing to know your place of employment, your tax returns, or any other forms of money that you earn. They may also look at your credit score to see if you have a good record of paying off previous debts.
Once the application is approved, the lender will propose to the consumer a loan that will offer you the price of the home, plus an interest rate. The consumer then can accept or deny the offer if perhaps the terms will not be agreeable to his budget. If the consumer takes it, then they are accepting the terms of the loan, or it is doable for him. They also agree to the fact that if they default on the loan, they will lose the home which leads to foreclosure.
Once the buyer and the seller agree to the terms of the deal, they all meet to do a closing. A closing is when the borrower makes the down payment to the lender, and then the seller transfers ownership to the buyer, with the seller getting any agreed-upon money. The buyer then signs whatever paperwork is left, and the sale is closed.
- Auto Loan –one that is used to acquire a vehicle for your personal or business needs. There are two basic steps in getting this – finding a car and then finding a loan to pay for it.Just like mortgage but a little different in some terms, this will have collateral – the car you wish to buy. This means that if you default on your auto loan, the lender can take your car for payment of the loan.
Interest rates for an auto loan are typically lower than that of other consumer loans because they do have the collateral if you default. The interest rates can vary depending on many factors including your credit history and your credit score. If you have a less than stellar credit history, your interest rate will be higher than if you have an excellent credit history.
The process of buying a new car is similar to buying a pre-owned car. The difference is usually the price of the car. Surprisingly enough, the cost of a new car can be lower than that of a pre-owned car because of a few factors, mostly the interest rate. When you purchase a new car, many manufacturers offer lower interest rates for the life of the loan, and some even offer a zero percent interest rate.
- Student Loans –this is the borrowed money you get to finance an education at an accredited school or institution. These loans can come from the federal government, or they can come from private lenders and can finance tuition, supplies, books, and living expenses. A federal loan will have lower interest rates than loans from a private lender because they are backed by federal programs.
There are many terms associated with student loans that you need to be aware of. One of the most important terms that you will need to know, especially if you want a federal loan, is FAFSA, or Free Application for Federal Student Aid. You can learn more about the FAFSA here: https://studentaid.gov/h/apply-for-aid/fafsa. This is a form that is provided by the federal government that allows them to award you with any type of financial aid such as grants, loans, scholarships, and work-study programs that can help you to finance your studies.
Two more important terms for you to know are deferment and forbearance, both terms that apply to government loans. A deferment is basically a pause in your payments to your federal loan and can be for as long as three years. This will help you if you are still going to school and do not have an income. This is a good option for you if you cannot make the payments now but will be able to at a later date.
Forbearance is a periodof up to twelve months at a time that you are authorized not to make a payment. With a forbearance, you are still accruing interest, so it is best to see if you can have a deferment instead of a forbearance.
- Personal Loans – These are loans that you take out for personal matters that can be anything from debt consolidation to vacations or medical bills. These loans are usually for shorter terms and are usually with higher interest rates. These are almost always unsecured loans or forbrukslån uten sikkerhet, which means that there is no collateral to secure the loan. The lender usually does not have much recourse if you default on your loan except to put a mark on your credit history and credit score.
There are times that you do need collateral to use for personal loans and the lender will want to attach the loan to a bank account or other assets they can take if you fail to meet the payment terms. Personal loans have either a fixed interest rate or a variable interest rate that changes during the time of your loan.
A personal loan is usually expensive due to the interest rates and its short-term, so it is best if you use it for something that you need. The best reasons for getting a personal loan are for debt consolidation, home renovations, emergency expenses, or personal events such as weddings or funerals.
- Credit Card – Most people do not understand that a credit card is another type of personal loan. The difference between a personal loan and a credit card is that the former gives you the money upfront and expects you to pay down the balance each month., whilethe latter is a line of credit that has a revolving balance based on what you spend. You still must pay monthly on a credit card, but the amount owed can change based on your balance.
These are all types of consumer loans that you can take out for various times in your life and several reasons in your life. You need to make sure that you research all your options before taking out any type of loan so that you get the best terms for the one you take out. You want to make sure that you get the loan that is best for your needs and your financial status.
