As a consumer, I am always looking for new ways to get deals on the things that I am already doing or purchasing. I kind of approach the subject of loans in this manner, as strange as that might sound. You see, I’m usually trying to find lower interest rates and better repayment terms when I’m going to take out my next one.
As you can probably guess, I would consider myself a bit of a connoisseur when it comes to credit agreements. Interest rates are what I tend to focus on since they can really make or break a contract in terms of whether I want to go through with it. Why is that, though?
Well, interest is basically what the lender charges us borrowers for being able to take out a loan in the first place. In relation to consumer loans, though, it is even more important. Since there is no collateral involved, that does mean that the interest charged tends to be higher. I will be explaining that further on, so don’t worry if you’re not following just yet.
What is a Consumer Loan?
Obviously, we cannot really talk about the interest rates for these if we do not first establish what they are. Consumer loans are just the ones that are given to private groups or citizens as opposed to businesses, so that is simple enough.
However, there are several distinct categories of consumer loans, so that’s what’s really important here. The ones I am focusing on for the most part are private loans, but there are other ones too. For instance, mortgages, auto loans, and student loans are all under this umbrella.
Private loans, though, are a bit different than the ones that I mentioned above because you can spend them on almost anything. Of course, the emphasis there is on the almost part, but they’re much more flexible than any other types of consumer loans (unless you are counting credit cards, of course, but for the sake of this article I’m not). That freedom does come with some extra costs, though.
Private Loans
Now, you can get an idea of what to expect on this page, https://www.forbrukslånlavesterente.com/, but admittedly this is a fairly complex topic. You see, because they are so flexible, it can be hard to ascribe a single definition to them. However, I will be doing my best to do just that for you.
As far as a definition goes, that’s the easiest part here. Simply put, private and personal loans are a credit agreements for any borrower for a variety of reasons – there isn’t really one specific one. Whatever you decide to borrow the money for, though, usually you’ll want to specify that on the initial application. What are some of those uses, then?
Consolidation
I will start with the one that folks do seem to be most confused by since at face value it does not really make much sense. Why would you want to borrow more money to pay off your current debts, right? Doesn’t that just leave you in even more debt?
Well, not exactly. These are largely for people who have a lot of different bills for their loan repayments spread out across several accounts. If you can get a lower interest rate on a new one and simply use the funds to pay off what you currently owe, that’s called consolidation. While it’s not for everyone, I can see why some folks do go this route.
Emergencies
Sometimes, life throws us curveballs that are just difficult to handle. When that happens, we’re left with few options – especially if we’re in a tight spot financially and don’t know what else to do or where else to turn. In those situations, something like a personal loan can really come in handy.
Of course, I’m not suggesting it if you do not think that you could pay it back, since that could wind up landing you in even hotter water. However, there are circumstances in which using a personal loan for an emergency is completely understandable. You’ll have to use your own discretion, at the end of the day.
Home Improvements
Ever heard of house flipping? It is something that has exploded in popularity over the past few months thanks to the boom in the housing market. You can read about it more in this article if you’re not familiar, but the basic gist of it is that you buy a property that needs some “work,” so to speak, and you fix any problems inside.
Usually, a flipper will also make some cosmetic changes, all with the goal of making a profit when they put it back on the market. While it might seem a bit odd, a lot of them get their start by taking out a personal loan to help with their first project. The goal is for the credit agreement to eventually pay for itself thanks to the profit made from selling the properties, so it is far from the worst plan.
Building Credit
There is a fairly familiar catch twenty-two when it comes to borrowing, and it’s that you need credit history to be able to borrow – but you need to borrow to build up your credit history. It’s a problem that frustrates many a college student each year when student loan season comes around, as well as anyone who just hasn’t had the time to open many credit accounts.
One way that you can do that is by taking a small, personal loan out. Most likely, it will have pretty high-interest rates – especially if it’s not secured by any collateral (which is the case for most of them). However, you can still find them for pretty good rates – if you can’t find any near you, you may want to expand your horizons a bit. There are even international lenders who can offer you nice deals at low-interest rates!
Once you’ve been approved for a loan like this, you can just make the repayments as scheduled. By doing this, you can improve your credit score relatively passively – especially if you put it on autopay and use the original principal to pay it back. Just don’t pay it all off early – you want more positive statements added to your credit history than less.
Personal Expenditures
I have left this for last since it is probably the broadest category out of the ones that I’ve covered. Clearly, “personal expenditures” could be referring to a whole lot of things. In terms of what most borrowers go for, though, there are a few examples.
Weddings and vacations are both huge in the world of private loans because few other credit agreements would cover such a thing. Now, if you are confident in your ability to repay a loan that’s for this purpose, then I really don’t see anything wrong with it at all. Down payments can be quite expensive, after all, so finding ways to mitigate that can’t hurt.
Just be mindful of those interest rates. Depending on your credit score when you apply to something like this, it could end up being pretty high. Never be afraid to shop around for different lenders, and do not settle for something that you think is unreasonable. You can always find a better deal.
