A great number of people have more needs than resources to meet them and this causes a lot of frustration. Sometimes this frustration can be minor or just mid-range while at other times it can be life threatening. When such monetary issues arise, there are a number of ways that people tackle them. They can either solicit funds from friends and family, save money, or take out a loan.
The most common loans that people take out to meet unforeseen emergencies are consumer loans. This is not to say however that this type of loan is meant only for emergency situations. You can also take out consumer loans for projects that your income cannot accommodate. These include renovating a home, taking a trip/vacation, buying a car, and paying college tuition or medical bills.
In this article, we will briefly look at different types of consumer loans and also explore how to get the one with the lowest interest rate so stay with us.
Types of Consumer Loans
As we hinted above, this credit can be used for different purposes and that’s why you have different categories of this credit type. These loans can either be secured or unsecured. Secured loans are those that are backed by collateral while unsecured loans are those that are not backed by collateral.
A collateral is an asset of equal or more value than the sum of money that a borrower seeks to get from a lender. This collateral serves as security for the sum of money borrowed and can be used in recovery of the debt in the event of default. Visit https://venturize.org/ to learn more about collateral.
We would go on now to expatiate on the different types of this credit facility.
A mortgage is a legal agreement between a borrower and a creditor where the creditor advances the borrower funds to purchase a home or other types of real estate. This agreement is predicated on the premise that the property purchased is the collateral for the credit. This means that the house will be repossessed in the event that the borrower defaults in payment of their debt. This makes a mortgage a secure loan.
This is a credit facility extended to a borrower for the purchase of a vehicle. This loan is a secure one because it is backed by collateral which oftentimes is the vehicle that was purchased with the funds. Just like in a mortgage, the creditor can repossess the car if the borrower fails to pay their debt as at when due.
This is a peculiar type of consumer credit which is also known as a revolving line of credit. In this arrangement, the borrower is given a thin plastic/metallic card with which they can make everyday purchases/payments up to a pre-agreed sum. This amount is then repaid with interest on a certain date (known as the billing date) that has been agreed upon by both parties.
It is called a revolving line of credit because it is not a one-off arrangement. This card gives the user purchasing power sometimes above their income which they can use as often as they want as long as they keep paying up on the date agreed upon; most times this date is usually at the end of the month. This is not a secure loan because you do not have to put up collateral before you get a credit card.
This is credit given to facilitate the payment of tuition for tertiary education. It can also be used to buy books for tertiary students and cater to their daily expenses throughout the study period. It is an unsecured loan that is due for payment only after the student has completed their study and started earning an income.
This as the name implies is credit that is given for personal expenses. In this case, the borrower can use the funds for any expense that they so desire even if it is not what they stated in their application form. This is also an unsecured loan because it is not backed by any collateral.
Tips for Getting a Consumer Loan with the Lowest Interest
When you apply for a loan, the lender will assess the application and determine the amount and interest rate to charge. Although this assessment has base criteria, it differs from person to person. This therefore means for example that Mr A might get a loan for X amount with 10% interest while Mr B might also get the same X amount but with a 15% interest rate.
What made the difference and why did one person get a lower interest rate than the other for the same amount of credit? We will explain the things that you can do before applying that will help you the lowest interest rate possible for a consumer loan.
Reduce your Debt Profile before Applying for a Consumer Loan
One of the things that lenders look at when assessing a person’s application for a loan is the amount they already owe. The higher your debt profile, the higher the interest rate you attract and sometimes the lower the amount that will be approved for you.
This therefore means that in order to get a credit facility with low interest rate, you have to endeavour to reduce your debt profile. This includes credit card debt, vendor financing, overdrafts, and bank loans.
Avoid Multiple Loans at the Same Time
If you have multiple loans at the time that you are applying for a consumer loan, you are already at a disadvantage. Each creditor that you have piles on the fees and interest that will be placed on the new loan you are seeking.
You can solve this problem by either paying off the most expensive outstanding or refinancing. Refi is when you take out a single loan to pay off all your existing debts. This makes repayment a lot easier and most often gives you lower interest rate and fees.
Always be on the Lookout for loans with Lower Interest Rates
If you know that you usually need some financial boost from time to time or you have existing loans or credit card debts, one thing to always do is look out for lower interest rates. Always check the financial market because interest rates are not static; click here for examples. Sometimes, your credit score may have improved and this certainly qualifies you for lower interest rates; but unless you check, you can never know.
Get as Many Loan Offers as Possible
When applying for consumer credit, one of the things you need to do is to get as many loan offers as you can. You can request for pre-application to help you get these offers without affecting your credit record. However, the stress of sifting through several banks and lending institutions may be too much for you. In this case, using a loan or financial agent is a good idea.
These professionals help you to reach as many lenders as possible with just one application form. All you need to do is forward this application to them and they will do the rest of the work.
Apply With a Co-signor
A co-signor is one who you take out a loan with and both of you will be responsible for the payment of the debt. Applications with a co-signor usually have a higher rate of approval. This is because they are considered lower risk loans because they are backed by two incomes.
As is well known, low-risk loans attract lower interest rates and fees so you can apply with your spouse, parent, partner, or any family member. The only thing is that both parties must meet the basic requirement for qualification.
Taking out consumer loans can sometimes put people in financial difficulty. This is because the interest rates of some of these loans are astronomical. In this article however, we have shared tips that will help you get the lowest rate possible. Bear them in mind going forward so that you will not fall into the trap of expensive interest rates.