With the financial difficulty that a lot of folks are going through, getting a loan becomes inevitable. One of the loans that many take to weather the tough financial storms is a customer loan.
Although there are many types of loans, consumer loans have a lot of benefits. You can visit website to learn more about the different types of loans. Hence, in this article, we will be discussing all you need to know about consumer loans or Forbrukslån as it is called in Norwegian.
What a Consumer Loan is
A forbrukslån is a type of loan that is given to individuals to aid them to finance some particular expenditure. You could also describe it as a loan type that is given by a creditor to an individual. A consumer loan can come from banks, online lenders, credit unions, and even friends and family.
Some people believe that forbrukslåns do not need to be secured with the borrower’s assets. However, this is not true. Many have assumed this because this kind of loan can either be secured or unsecured and the latter is more popular than the former.
Hence, let’s distinguish between these two…
Secured Forbrukslån vs. Unsecured Forbrukslån
In this section, we will briefly look at the differences between a secured and an unsecured consumer loan.
This loan requires collateral before the funds can be approved. In case the borrower is unable to pay back when due, the asset of the individual which is laid down as collateral is possessed by the creditor. The possessed asset can then be liquidated to recover the borrowed funds. Hence, because of the security that the creditor enjoys as a result of this arrangement, this loan is regarded as secured.
The advantage of this forbrukslån is that you can borrow a large amount of money. The period for repayment is longer thereby giving you ample time to recover the money to pay back. Lastly, the borrower enjoys a lesser interest rate.
This loan doesn’t require any collateral. As a result, the creditor is more exposed to risk as they do not have any assets that can be liquidated to recoup the money. The borrower; therefore, doesn’t have to worry about losing their assets in case they default repayment.
In turn, the amount that can be borrowed is usually much lower compared to secured consumer loans. Furthermore, the repayment period is much shorter, and the interest rate is much higher. All these are done to ensure that the creditor can recoup their money. Visit: https://www.moneyhelper.org.uk/en/everyday-money/credit-and-purchases/secured-and-unsecured-borrowing-explained to learn more about unsecured loans; how they work and how you can get one.
Consumer Loan Categories
There are two main categories of consumer loans which we explain better below…
Another name for this forbrukslån is revolving credit. It is called that because a part of the loan and interest must be repaid before a particular date. You can use this forbrukslån for any kind of purchase.
Once the borrower fails to make payment before the date that has been specified, additional interest is charged. Hence, an individual could end up accruing so much interest if they continue to default payment after the specified repayment date.
A credit card fits this category of loan. With a credit card, you can make any kind of purchase; however, the unpaid amount must be paid when it is due. In case the individual defaults on their credit card repayment, interests will be charged until the money is paid.
Another name for this forbrukslån is installment credit. It is called that because the borrower must make an equal payment monthly for a while until the repayment is complete. Unlike open-end forbrukslån, closed-end forbrukslån can only be used for particular kinds of purchases.
This category of forbrukslån in most cases is secured. Hence, when the installment repayments default, the creditor can take possession of the collateral and liquidate it.
Here are some types of consumer loans:
Mortgages are one of the most popular types of credits. It is used for funding a house purchase. They are usually given by banks, online lenders, and credit unions.
In most cases, you have to make monthly repayments for the house. When you default repayment, foreclosure of the house might be carried out by the creditor.
An interesting thing about mortgage loans is that the interest rate is the lowest when compared to other forbrukslån types. The reason for this is simply because it is a secured loan.
Here are important pieces of information about this loan type:
- Common credit terms: 15 & 30 years
- APR (Annual Percentage Rate) interest Range: Minimum of 2.8% and a maximum of 5.6%
iii. Required credit score: A higher credit score equals a lower interest rate. Most creditors prefer a 660 minimum score or better. Nevertheless, with a credit score of 550, you can still get an FHA (Federal Housing Administration) loan.
- Potential Creditors: National and community banks. You can also get this kind of loan from national and credit unions. Online lenders also provide mortgage loans.
This type of credit is used to finance a vehicle purchase. Your vehicle can be collected once you fail to make payments. You could get this credit from a bank, online lender, credit union, or a car dealership. Loans from car dealerships in most cases are usually more expensive although they are more convenient.
Below are important pieces of information about this loan type:
- Common credit terms: 12 to 84 months
- APR (Annual Percentage Rate) interest Range: 1.04% to 13.97%
iii. Credit score requirements: Minimum of 780 and above for the best interest rate; 600 score to 779 for an average rate; and less than 600 for interest rates on double-digit.
This is used for personal reasons. They could be secured or unsecured. The interest rate is dependent on an individual’s credit history.
Below are important pieces of information about this loan type:
- Common personal credit term: 12 to 60 months
- APR (Annual Percentage Rate) interest Range: 6% – 36%
iii. Minimum credit: $1,000 to $3,000 depending on the lender.
- Maximum credit: $25,000 to $100,000 depending on the lender.
- Credit score requirements: More than 660; however, some creditors will accept less than 610.
- Collateral requirements: Depends if it is a secured loan. Unsecured forbrukslån does not require one.
Students who want to fund their college education can take this loan. As a result of the Covid-19 pandemic, the interest rates for federal-funded student loans were reduced drastically to 0%. This will remain until the 30th of September, 2021. State-funded student loans, on the other hand, did not offer this reduction.
- Common credit terms: 10 – 25 years
- Federal loans APR (Annual Percentage Rate) interest range: 0% (Covid-19 pandemic to 30th September 2021)
iii. Federal loans APR after the removal of Covid-19 rules: 27.5% for undergraduate loans, 4.3% on graduate loans, and 5.3% on PLUS loans.
- Private loans APR interest range: 2.8% to 14.5%
- Forgiveness: Maybe for federal but not for private.
The article above has discussed the important things you need to know about forbrukslån (consumer loans).