Consumer Loan

Learning how to understand consumer loans isn’t a difficult task.

Many people don’t know what consumer loans are, but it’s because they don’t look into them. Most people have already applied for consumer loans, so there’s a good chance that you have one. If you’ve ever gotten a credit card or applied for a student loan, you’ve applied for a consumer loan.

Understanding consumer loans is important for anyone that would like to find financial success because they can be good financial tools. Consumer loans allow individuals to get things they otherwise couldn’t.

So what is a consumer loan and how do you get one? Read on to learn everything you need to know.

What Is a Consumer Loan?

A consumer loan is any type of loan where a person borrows money from a lender. There are various types of consumer loans that are both secured and unsecured. Each loan comes with different terms and interest rates, and they’re usually used for a specific purpose.

Here are some of the most common consumer loans:

Difference Between Secured and Unsecured Loans

Secured loans are loans in which the borrower gives the lender collateral. Collateral is something that lenders can use to recover their money if the borrower doesn’t make payments. Most people will use their homes and vehicles as property, which are typically done with mortgages and car loans.

Most personal loans are unsecured, which means they don’t pledge an asset as collateral. Unsecured loans typically have higher interest rates because the lender is put at high risk when they give out the money. Having high interest encourages borrowers to pay back the loan and the lender can earn a decent profit.

Personal Loans

Personal loans are the most common type of loan because most banks and credit institutions offer them. These loans can be used for anything, whether you need money for personal use or you’d like to fund a business. Providing that you have a good credit score, you can qualify for a wide variety of personal loans.

With a personal loan, you can borrow several thousands of dollars. The repayment period will vary depending on the amount and who you’re borrowing from, but the range can be anywhere between 1-12 months.

There exists something called a “payday loan,” which is a short-term loan that can be applied for if you need quick cash. Payday loans get their name from the fact that the repayment periods are short, often around 2-4 weeks. These loans also come with higher interest rates than most personal loans.

You can also get a car title loan, which is a personal loan but the lender uses your vehicle as collateral. This is good for anyone with a low credit score because offering collateral increases your chances of getting approved.

Student Loans

Most people are familiar with student loans because we’re taught that they’re essential if you’d like to go to college. However, student loans should be a last resort for students because they’re too simple to get, so many people find themselves drowning in debt.

Student loans often come from the government, some private institutions offer them. The government offers two kinds of loans: subsidized and unsubsidized.

Subsidized loans are given to those that show they’re in financial need whereas unsubsidized loans can be used for anything. The amount you would get for a subsidized loan will vary depending on your financial need.

The main difference between the two is that subsidized loans don’t accrue interest while you’re in school whereas unsubsidized loans do. Repayment periods for student loans can last for several decades, and many people go into tens of thousands of dollars in debt.

Line of Credit

Line of credit is also something that most people are familiar with because they use credit cards. A line of credit is essentially a revolving debt, meaning you can keep borrowing money providing that you make payments. For example, you can borrow $1000, repay it, and then borrow again.

Just like personal loans, a credit card can be applied for at a bank or credit institution. In most cases, you can apply for one online and receive instant approval or rejection. You have to be careful when getting a credit card because it can be easy to abuse it.

Using a credit card will greatly affect your credit score, so it’s best to make payments as soon as possible. Don’t pay the bare minimum, you want to get rid of the debt so that future lenders consider you financially responsible.

Mortgages and Car Loans

One of the best ways to get a consumer loan is to apply for a mortgage or car loan. These are 2 common secured loans that people regularly deal with, but they’re more beneficial than most loans because you can get an asset out of them.

A mortgage loan is designed to allow people to buy a property. Whenever you want to buy a house but don’t have the money, you’ll apply for a mortgage. You’ll most likely borrow money from a bank, so the bank will use your home as collateral.

Car loans are just like mortgages in that the lenders will use your vehicle as collateral. The repayment periods for both mortgages and car loans can last anywhere between 5-10 years, but some people will go longer than that.

Understanding Consumer Loans Is Simple

Many people aren’t sure how to understand consumer loans, but it’s as simple as looking into the terms and conditions of a loan. After reading this article, you now know the answer to the question, “what is a consumer loan?”

If you need a consumer loan, the best way to get one is to contact a bank or credit institution near you. You can receive consumer loan information about the type of loan that you’d like, and a representative will guide you throughout the application process.

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