Many people have gotten into a lot of financial troubles because of unpaid debts. One reason why people have debts that they cannot repay is because they took out loans without doing due diligence and ended up with high interest loans.
There are many things that affect the overall cost of a loan, and they include the interest rate, establishment charges, repayment duration and the amount borrowed. This therefore means that all these factors have to be taken into cognizance before considering a loan offer. Read this article for information on how to evaluate a loan offer.
In this article, we will examine how to make informed decisions about loans based on reviews, but we have to start out with some basics about this financial instrument.
Definition of Consumer Loans
These are cash advances given to consumers to help them finance expenditures that their income cannot cover. This credit can either be backed by security or not. The ones backed by security are known as secure loans while the ones that are not backed by security are known as unsecured loans.
Collaterals are assets that are of equal or higher value than the amount of money that a borrower is applying for. So when a borrower puts down such an asset for a loan, the credit is said to be secure and when they do not, the credit is said to be unsecured.
Bankers are often more amenable to approving applications that present collateral because they are considered low risk transactions. The reason for this assertion is that the collateral can be repossessed by the lender and sold to recover the loan.
Types of Consumer Loans
There are different types of consumer loans, and they include the following:
- Mortgage
- Auto
- Personal
- Student
- Medical
Mortgage
This is a type of credit facility that is used to buy or maintain a land, home or any form of real estate. It is given based on an agreement between the borrower and lender where the borrower agrees to pay the sum borrowed over the course of an agreed period. These payments are usually in instalments and are divided into the principal and the interest.
Mortgages are secured loans because they are backed by collateral and the home or piece of real estate bought is oftentimes the collateral. If the borrower defaults on payment, the property used as collateral is repossessed by the lender and used to recover the debt.
Auto Loans
These are credit facilities extended to borrowers to enable them purchase cars or any other form of automobiles as agreed upon by the lender. This arrangement is also a secured credit because it is backed by collateral and the vehicle purchased is usually the collateral.
Just as is obtained with a mortgage, the lender has the right to repossess the vehicle purchased in the event of default in payment. The repossessed vehicle can be used in any way deemed fit by the lender to recover the debt.
Personal Loan
This category covers a wide variety of credit advance because it can be used for any purpose that the consumer desires. Some bankers even go as far as having different subcategories under this heading; an example of this is travel or vacation loans.
Although the application form for this facility usually has a column for purpose of the loan, the applicant is not obligated to use the money for the purpose they stated on the application form. So, they might state that they want to use the loan for home renovation but finally use it to buy home appliances.
This loan is not secure because it is not backed by any collateral. For this same reason, the interest rate is usually higher than for secured loans.
Student Loans
These are credit facilities given to finance tertiary education. These credits can be offered by government or private agencies. With this loan, the student can take care of every expense that comes up in the course of their studies; from tuition to books and daily expenses, all can be covered by this facility.
This is also an unsecure loan, and the student is not expected to repay until after they have graduated and started earning an income.
Medical Loan
These are credit facilities that are given to help consumers pay of medical bills. Sometimes also, some financial institutions and hospitals or medical centers collaborate to provide financing for some medical procedures that are not covered by patient insurance. The patient and the health service providers then have an agreement on how the money will be repaid. This also falls under the unsecured category because it is not backed by any collateral.
The Significance of Informed Borrowing
Informed borrowing happens when a consumer weighs all the variables involved in the process and outcome of taking out a loan and then decide that it is the best route to go for financial relief. There are many factors to consider, and they include the following:
- Your credit score to know the level of your creditworthiness so that you can know how to improve on your financial record before applying.
- Different offers from different lenders to know which one has the best terms and conditions for you.
- All the details of the loan agreement.
- The necessary documents needed for application.
Due consideration of the above factors is what constitutes the significance of informed borrowing because the process goes a long way in helping you make the right decision as it affects the type of loan you want to take out and whether it is worth it or not.
The Impact of Consumer Loans on Personal Finances
Personal finance has to do with how an individual manages their money as well as how much they save and how they invest. This covers banking, budgeting, insurance, retirement, estate planning, tax and insurance. Oftentimes, the term is also used to refer to the industry that caters to the financial needs of households and individuals and advising them about investment and financial opportunities.
Consumer loans can wreak havoc on the personal finances of individuals and households. This happens when people take out loan amounts that are way higher than their income or have high interest rate and short repayment duration.
With shorter repayment periods and high interest, some consumers are unable to make their monthly payment. Sometimes due to pressure from debt collectors, some consumers choose to refinance but unfortunately do not still get it right. This goes ahead to perpetrate a cycle of debt.
Avoiding Debt Traps and High-Interest Loans
There are many financial products out there that promise consumers relief from their financial woes. However, most of these products end up becoming debt traps that dig them deeper into the financial quagmire.
These products include credit cards, mortgages, personal, payday, medical, auto and all kinds of loans. That is why you need to be very careful about taking out any loan. Check out all the terms and conditions and all the factors that we stated earlier so that you can make an informed decision.
One thing to watch out for especially is high interest loan because this is the number one cause of debt cycle. With a high interest rate, your monthly payments and borrowing costs are higher.
Why Reading Reviews Matters
Whenever you want to take out a consumer loan from any financial institution, another thing you need to do is read reviews by their clients and also on independent review sites. This goes a long way to help you form an opinion about the lender you want to work with.
Sometimes however, it is difficult to know which reviews fake and which ones are honest. This therefore means that you have to carefully look at the source of the review to determine whether they are legitimate customers, paid reviewers or authority sites. You can visit www.billigeforbrukslån.no/best-i-test-forbrukslån/ for an example of genuinely reviewed terms and conditions from lenders.Be sure to study all the little details to give fair assessment.
Some others may however get paid by companies to write glowing reviews about different financial products offered by the companies. You should therefore be wary of reviews that overly glowing.
Tips for Using Reviews
It is established that your best bet is to check out reviews from well-known websites that offer impartial and expert reviews. However, you can also get additional information from other sources; you only have to be very careful. So, find below tips to help you sift out fake reviews from the real ones:
- Check when the reviews were written and whether so many of them came in at the same time or within a short window of time.
- Check the name of the reviewer and how many reviews they’ve written over time. Read all their reviews to get a feel of their reviews. Also look out for people who create accounts just to write a review for one company; those may be fake reviews.
- Bear in mind that fake reviews are not only positive ones. Sometimes companies sponsor negative reviews against their competitor.
- Look out for labels or badges that show that a reviewer was given an incentive by the company they are reviewing. This will help you know how to rate the review.
Conclusion
We have taken time so far to discuss the basics of consumer loans, the significance of informed borrowing and how to use reviews to make informed financial decisions. Bear these tips in mind as they will help you going forward.
