When looking for a quick and easy way to offset your bills, a lot of options come to mind. These include taking loans. If you decide to take a loan, you will find that there are different types of loans. These loans have varying terms and conditions attached to them. So, finding one that favors you is very important.
Most times, a lot of people like to Låne penger (this means to borrow money in Norwegian) anytime they need urgent cash to meet their needs. But before taking out a loan, you need to understand that specific loans are meant for specific purposes. For instance, if you are considering a funding option for personal needs or emergencies, then a consumer loan would be ideal.
A consumer loan is a type of loan that is given to an individual in order to meet personal, family or household immediate needs. This implies that it does not include small business loans. Having a proper understanding of this will help you use it wisely.
In this article, we will be doing a quick review of how to apply for a consumer loan. Please continue reading as we explain more.
Types of Consumer Loans
The following are forms of consumer loans:
This is a form of consumer loan which allows the holder (borrower) to access funds for their personal expenses. The credit card is linked to an account which is credited by the lender. After which, the account is used by the borrower for cash transactions with an agreement to repay the credited sum with interest at an agreed date.
Motor Vehicle Loan
As the name implies, this is a form of personal loan that is specifically acquired for motor vehicle expenses. This includes motor purchase, repair, and replacement of parts or maintenance.
This form of credit is meant for school fees and expenses.
This is meant for other personal and day-to-day running expenditures. This includes feeding, utility bills, rent and transport.
Categories of Consumer Loans
Consumer loans are basically categorized into two and they include:
This refers to a type of consumer credit that is not backed by any collateral. This type of credit is usually short term and has a high interest rate as well. As a result, the terms and conditions are stringent so as to ensure that the borrower repays the credit. Before this loan is approved and disbursed, an adequate record of the financial history of the borrower is required.
This consumer credit is one that is backed with a valuable asset that could be used as collateral. The collateral stands as an asset that can be sold to redeem the debt in case the borrower defaults in repayment. This means that before this type of user credit is approved, the collateral provided must be a worthy one.
Furthermore, secured user credits are usually for a long-term. So, with this type of credit, you can have access to a large amount with a low interest rate.
Factors to Consider Before Applying For a Consumer Loan
The following are some of the factors to consider before applying for consumer credit:
Your list of needs will go a long way to determine what you really need money for. However, this list must be arranged in the order of priority. What are those pressing needs that need urgent attention? Once this is settled, you will be able to estimate how much money you need and know the type of consumer loan to go for.
This list will also help you to be prudent after getting the credit. It will serve as a checklist for you. So, before you take the step of borrowing, outline your pressing needs in the order of importance.
Check Your Cash Flow
After making your list, examine your cash flow. This simply entails your income flow and expenditure pattern. Take note of the percentage of income left after deduction of your expenses. Then, make an analysis of what percentage can be used to repay debt.
This will ensure that you prepare and plan effectively before taking any credit.
Repayment Terms and Conditions
The terms and conditions of consumer loans differ. This depends on the form and category. So, the repayment condition is not constant. Also, the time frame is different. This could be 3 months, 6 months or even more. Whether long or short term, in cases where collateral is required, you will need to meet up with the terms. Consequently, before deciding to go for user credit, make sure you understand what the repayment pattern is.
Consumer credits are not non-interest loans. The interest rate depends on the type of loan you intend to secure. As stated earlier, secured loans have a low interest rate, especially when compared to unsecured loans.
Also, most banks have fixed interest rates for personal loans, student loans or auto loans. If you are not getting the loan from a bank, but another type of financial institution, ensure that you understand the interest before signing the agreement.
Your financial history or record is one of the requirements financial institutions need before approving any credit. A good financial record gives you a high chance of receiving funds. This is important because no lender will want to lend money to a borrower who will not be able to repay their debt. Therefore, check out your financial history before considering a loan application.
Some personal loans attract other charges like processing fees, default fees, and tax rate. Considering these other deductions will help you know which option is best for you to choose from. Also, you will understand what is required for you not to incur more debt for yourself.
How to Apply for a Consumer Loan
The following are some of the steps involved in applying for a consumer credit:
Choose a Reliable Creditor
First, decide on the creditor you intend to apply for credit from. While doing this, consider the credibility and reliability of the creditor. It is always recommended that you seek credit from financial institutions or entities that have good legal standing and are duly licensed. This is important because if there is any default from either of the parties, they can sue and be sued. Also, this will ensure that the credit process is formal and valid. You can decide to use your bank or any other trusted finance house.
Get the Loan Application Form
After choosing a financial institution, you can go ahead to get the loan application form. This form helps the institution to get some basic and vital information about you. This information includes, you name, sex, address, occupation, nationality, valid personal identification number, and contact number.
It also contains questions like purpose for which the loan is needed, type of loan, interest rate and repayment duration. This form officially informs the finance institution of your intention to borrow money from them. At this point, this can be approved or declined. If it is approved, the institution can then move ahead to prepare the loan agreement.
Check out the Loan Agreement
The loan agreement is usually prepared by the lender to be signed by the borrower. The loan agreement contains the terms and agreement of the loan. It is simply a document that contains all the dos and don’ts of the credit.
Depending on the type of personal credit you want, the agreement states the date, time, and month the loan is issued. It also contains the expected date of repayment. If it is an installment credit, it will contain the different dates of repayment.
Also, the agreement includes the type of collateral that the loan is worth. If it is an unsecured loan, the agreement will show you the conditions attached to it. The relevant documents needed and the penalties involved if there is a default in repayment would also be included.
However, you should know that the repayment date is usually estimated by using the APR system. APR (Annual Percentage Rate) is determined by how expensive the loan is. This means that if the APR is low, the loan will be low and vice versa. So, it will attract a shorter time-frame.
It is important that you check this agreement before signing it. This is because it is a legal document that serves as evidence that a loan has been given to you. Check out the agreement carefully and ensure that you understand what it entails before consenting to it.
In case you do not understand what it involves, you can contact a financial advisor or expert to help you out. This way, you will get the best and engage-in an agreement that favors you.
Fill in the Required Information
If you understand the agreement, you can then go ahead to fill in the required information. Ensure that you follow the instructions and fill in the correct information as required in the appropriate spaces. Also attach the required documents where necessary. Some of these documents include passport, valid I.D card, utility bill, credit score, and credit history and employment details.
Submit and Await Credit
After filling the necessary information, you can submit and wait for the response from the lender. Then, your account would be credited with the requested amount if approved.
We have discussed how to apply for a consumer loan in this article. However, it is pertinent to note that consumer credit is not quite different from other loans. It only differs because it carries the word ‘consumer’. So, it is specifically meant for meeting consumer needs.
Additionally, it does not really need a guarantor. But a borrower may have to tender collateral in the instance that a guarantor is needed. Therefore, it is advisable to only apply for it if you can afford it.