Depending on how old you are and what stage of your life you’re in, there’s a pretty good chance that you’re familiar with loans. Most of us have at least one loan in our lifetimes, though typically it will turn out to be a lot more than that. After all, for the average person trying to purchase a home or a car, we’ll probably have to borrow money to do so.
Unless you’ve got hundreds of thousands of dollars in cash, this is just the reality that most of us are experiencing. Generally speaking, the gut reaction is to assume that debt is always a bad thing. Many folks view taking out loans as purely negative, and that it is somehow a sign of weakness.
Realistically, though, this just isn’t true. When we think about it more critically, it becomes clear that in our current system, we are designed to have to borrow money at some point. Thus, it’s not something that we need to feel bad for doing or guilty about. Instead, we can view taking out loans as a way to gain some financial freedom.
The thing is, though, is that in order to take this approach, we do need to take a few important things into account. Today, we’ll be covering five things that you should definitely be aware of before you decide to get a consumer loan. Be sure to keep reading if that sounds intriguing to you!
One: Consumer Loans are Versatile
First up, we’ve got perhaps the most important thing to know going forward: consumer loans are a huge category, and a ton of things fall under this general umbrella. They are types of credit agreements that are used by individuals or households as opposed to business entities, so as you can imagine, there’s a lot of ground to cover with them.
What can they be used for, then? Well, the options are honestly almost limitless. The thing is, though, that we need to be careful about it. We’ll be sure to delve into that point further on.
For now, let’s focus on their various uses. Obviously, mortgages are a huge one. Auto loans also fall into this category, so long as they’re not for a company car meant for business purposes.
What would a conversation about consumer loans be if we didn’t talk about credit cards as well, right? In fact, arguably they’re probably much more common than mortgages. We hear about them a whole lot more, that’s for sure. Likely, this is because they are fairly simple to apply for and receive compared to some of the other options.
Student loans are another entry on the list of consumer loans, although they aren’t necessarily a huge deal in a place like Norway. Personal loans, on the other hand, are rapidly gaining in popularity. Why have we mentioned all of this? Well, hopefully it’s given you an idea of just how versatile this type of credit agreement can be.
Two: You Can Shop Around for Lenders
As we figure out our applications, look at our own credit scores and financial history, and start the entire process of getting a loan, it’s easy to forget that at the end of the day, we’re the customer. Financial institutions are competing to get us to borrow from them rather than their competitors. So, when we’re making the decision to borrow, we have to remember this.
We can take our time and compare our options. This isn’t always going to be easy, of course. The quest for forbrukslån lav rente can take a considerable amount of time, especially if we take into account just how many lenders and financial institutions there are in the world. Thankfully, there are ways to quickly compare and shop around!
If you look online, chances are that you’ll be able to see a lot of third-party websites that allow you to directly compare your options. They allow you to look at the interest rates side by side, as well as any other factors that you would like to keep track of. While it may not seem overly groundbreaking, there’s no denying that it can be quite helpful and save us some time.
Three: Lenders Take More than Just Credit Scores into Consideration
There is a fairly common misconception that when we go to apply for a loan, the sole thing that financial institutions care about is the credit score of the applicant. This simply isn’t the case. While credit scores are certainly one of the factors that are taken into account, there are plenty more as well.
Mainly, they’ll be looking at your overall financial health. They may ask about your rent payments, how much income that you make in a month, or anything else in that realm. So, while it’s still a good idea to know your credit score and to be prepared to answer questions about it, it isn’t the be-all and end-all of getting a loan.
Four: Interest Rates are a Big Deal
As far as what you need to worry about when you borrow money, interest rates are right up there with repayments. The reason why isn’t hard to see – interest is what we end up paying in excess of the principal amount that we borrow. We can think of it as the way that lenders charge us for being able to borrow in the first place.
Figure out what type of interest will be charged on your loan when you’re considering where to apply. It’s definitely a factor that can come into play as you shop around between the various financial institutions. Ideally, you’ll be able to find an interest rate that isn’t too high, and that has the potential to be adjusted later on in the lifespan of the repayment period.
Five: Budgets Can Make a Huge Difference
There’s a lot we have to say in this final point, but to sum it up briefly, we would like to note that it’s important to borrow responsibly. We should hopefully not be taking out a loan that we know we can’t afford. Although student loans are somewhat of an exception to this rule, other consumer loans aren’t.
Arguably, this is most critical with personal loans and credit cards, but it applies to all of them. Before you even consider filling out an application, figure out your budget. Whether you make one on paper or you use a phone app or something like that to do it, it’s something that’s necessary.
As you sort out your current budget, factor in what a new monthly payment might look like. See how that will impact your current standard of living. What will you have to cut back on (if anything)? These are all things that should be taken into consideration before you take out a loan.
Overall, there really isn’t anything wrong with having debt. We build our credit scores up as we pay off our past loans, and it gives us a better chance at being able to get a house or a car in the future. With all of that said, we also need to be careful about it.
Above all else, don’t overspend. Loans are not free money. That goes for personal ones, mortgages, auto loans, and especially credit cards. Buying things without considering the implications first (from the perspective of how much interest will be charged, for one thing) is a way to land yourself in financial ruin.
Thankfully, when we make budgets and stick to them, this becomes easier to avoid. It allows us to get an idea of how much more we can spend in a given month without having to pinch pennies. So, hopefully this is some helpful advice for the next time you seek out a loan!