Understanding the Basics of Consumer Loans (Forbrukslån)
Money problem is one issue that people face from time to time. These problems differ in magnitude from person to person. Some people’s issue can be solved by friends and family while others will require institutionalized assistance.
Some of the institutionalized assistance includes grants and loans. The process of getting grants is quite tedious and not open to everyone. This, therefore, brings us to the other option which is loans.
The category of loan that is easily accessible to individuals is consumer loans. This comprises personal, student, medical, mortgage, and auto loans. In this article, we will discuss the basics of consumer loans. Meanwhile, you can check out this site for more information on grants: https://www.grants.gov/
What Is a Consumer Loan?
This is a financial tool provided by banks and lending institutions to customers for financing several types of expenses. Some of these expenses include medical bills, student tuition and living cost, and major purchases. This instrument has terms and conditions that the customer has to meet to qualify.
One of the terms for qualification is a high/good credit score and history. With this, a customer can access whichever type of consumer loan with or without security. The term ‘security’ in financial circles means an asset that is presented to a lender to secure a loan. This asset is usually the equivalent in value to the amount borrowed.
Understanding the Different Types of Consumer Loans
The term consumer is an umbrella term that encompasses distinct types of loans. These loans are discussed in detail below: –
This is a line of credit that is extended to customers to enable them to make purchases or pay for services. The issuing companies of these cards usually charge higher interest on this tool than on personal loans. The cardholder has the option of choosing the minimum amount for repayment which makes it possible for them to carry their debts over into a new month. This will, however, increase the total amount that the customer will pay eventually.
Requirement for Getting a Credit Card
The following are some of the requirements for qualifying for a credit card: –
- You Must Be of Legal Age – The legal age in most countries globally is 18 years. However, in Norway, some banks do not give credit cards to people below 21 years; some even insist on the person being 25 years.
- A Verifiable Source of Income- The intending cardholder must have a verifiable source of income. This assures the issuing company that the customer is capable of repaying whatever amount is approved.
- A Valid Proof of Citizenship – In some countries, some banks demand that the customer presents valid proof of citizenship. Others who are not citizens must present a means of identification that shows that they have lived in the country for some number of years.
- A Valid Mailing Address- This is a requirement in the US but if you live anywhere else on the globe, you can find out the exactitude of the requirement in your location.
You can read this article for all the information you need about credit cards.
This is a credit facility advanced to a consumer to enable them to purchase a home or other types of property or real estate. A mortgage comprises three major features, and they are the monthly payment, the fees, and the down payment.
- Monthly Payments – This is the amount that is paid monthly to pay off the loan. It includes a percentage of the principal and the interest that is paid monthly. There are also other fees and property taxes that are included in these monthly payments.
- Fees – These are the monies you have to pay before the fund approved is disbursed to you.
- Down Payment – This is the amount paid upfront to get the mortgage. If you can put down a large down payment, you stand the chance of getting a better deal. A better deal includes a lower interest rate, faster acquisition of equity in the home, and fewer fees.
These three features determine the total cost of the loan at the end of the day.
Qualification for Mortgage Loans
The qualifications stated below are the requirements for a conventional mortgage. But note that these are just the basics.
- Down Payment – The minimum that a lender of a conventional mortgage will ask in down payment is usually 3% of the total sum.
- Debt To Income Ratio – Also known as DTI, this is the sum of your income over your debt. Most lenders can approve consumers with 45% DTI, but experts advise that consumers work on maintaining a DTI that’s not more than 36%.
- Credit Score – The minimum credit score for people who want to make a down payment that’s lower than 25% is 660. But those that are willing to pay 25% can qualify with 620. For those who do not have any score to work with, may qualify by proving their creditworthiness. This can be proven by showing consistency in the payment of car insurance, rent, or utilities.
- Mortgage Insurance – Borrowers who make a down payment that is less than 20% are required to get privately administered mortgage insurance.
This is a credit facility extended for consumers to purchase a vehicle; this can either be a car or any other type of automobile. The consumer can get this loan from a bank/financial institution or an auto dealer. However, getting this loan from banks or financial institutions provides a lower interest rate for the consumer.
Qualification for Vehicle Loan
- Good credit score
- Eligible vehicle
- An ID issued by the state.
- A low DTI
- A verifiable source of income
- Must be resident in a state that is eligible for the loan.
- Personal reference
- A trade-in or a down payment
This is a type of loan that is given to consumers to tackle any expenditure of their choice. This loan can be secured or unsecured. An unsecured loan is one that is approved without collateral. It means that the applicant does not need to present any asset of equivalent value before a loan is approved.
A secured loan is one in which the consumer is required to present an asset of value to the lender. What the collateral does is provide security for the lender. So, in case of a default, the lender can repossess the asset to recover their money.
Requirement for Qualification
Below are some basic requirements to qualify for a personal loan from any lender: –
- Must be up to 18 years or more – In countries such as Norway, most banks are more comfortable giving loans to people that are 21 years and above. So, if you live there, you need to find out how forbrukslån Norge (consumer loans in Norway) works.
- A Verifiable Source of Income
- A Good Credit Score
- Verifiable ID
- Credit History
A consumer loan is a financial tool that enables people to overcome some financial hurdles and emergencies that they face from time to time. It is therefore pertinent that everyone understands the basics. In this article, we have shared some basic information that we believe will come in handy whenever you need to apply for any type of consumer loan.