Consumer loans have become an essential product in every bank and financial institution. It is an instrument through which customers are advanced money to fund expenditures such as living expenses, medical bills, student tuition, purchase of home or property, and automobile.
Some people advocate that people should not take out loans so that they would not end up in debt. However, we do not believe that to be sound financial advice. The issue shouldn’t be about taking out loans but about how to manage and maximize the funds and make it work in the best interest of the borrower.
In this article, we will share some tips forbrukslån(tips for consumer loans). This will help you to know how to apply for the loan and also make the most of whatever credit facility you receive.
Consumer Loan Tips – How to Get the Best Option
We have established that there are certainly many good reasons why one can take out a consumer loan. However, it is pertinent to point out that you shouldn’t just fill out an application for a loan because you think it is quite easy to get approved.
A number of people take out loans on a whim without consideration of the fact that they would have to pay back and more so a higher amount than they borrowed.
That is why we are sharing the following 6 tips to help you in getting the best loan option for you:-
1. Establish the Purpose of the Loan
This may seem like a pedestrian tip but the truth of the matter is that some people have fallen into the trap of indebtedness because they discountenanced this point. Banks and financial institutions are established to make profits and money lending is a very profitable venture albeit risky. That is why they have marketers and salespersons who know how to sweet-talk people into taking out loans(especially customers with high credit scores).
We want to sound a note of warning that you have no business taking out a loan only on the premise that the bank/lender made you a ‘sweet’ offer. You must establish that there is a concrete purpose for which you need the credit facility.
The following are some reasons that we feel are solid enough for one to need a consumer loan:-
- Medical bills
- Student tuition
- To purchase a house
- Home Renovation
- To buy a car ( not a luxury but an essential means of transportation)
- To start or expand a business
You may want to add some other reasons that you think are cogent but we believe that you get the point.
2. Have a Concrete Repayment Plan
Before you think of applying for the credit facility, ensure that you have concrete plans on how you will repay. Do not take out a loan on a wing and a prayer; hoping that somehow you will be able to repay. That is usually a recipe for financial disaster.
If for any reason your source of income is cut off or your income fluctuates and you are in a bad place financially, a consumer loan can help out. But how do you plan to repay? When you find yourself in this situation, we would advise that you reach out to family and friends or charities rather than take out a ‘legal’ loan.
While it is true that lenders would always check whether you have the ability to pay back, there are some who do not really check to that extent. All they know is that they will get back their money by hook or crook. Getting entangled with such lenders has been the death of some folks (literally)!
So avoid consumer loans if you have no means of repayment or a concrete plan for that!
3. Explore as Many Options as Possible
When it comes to consumer loans, the principle of ‘the more, the merrier’ should apply. Look out for as many options as possible. You can choose to work with a loan agent which is actually a good idea because you can save time and money by using a professional. Note, however, that you must look out for a reputable professional.
So whether you are carrying out the search yourself or using an agent, ensure that you look out for banks or lenders that allow prequalification. This allows you to know the terms and conditions and interest rates of as many loans as possible without applying formally.
To pre-qualify for a loan, the lender will only run a soft credit inquiry on you. All you need to do is provide your social security number and some other information that they will specify. This inquiry will not affect your credit score because it doesn’t go on your credit report.
But when you apply formally, a hard inquiry will be requested on your credit history. This will go on your record and removes some points from your score. So imagine how many points you may lose if you just apply randomly without an iota of assurance that you will get approved.
4. Use the Same Parameter to Compare
Now that you have gathered as many offers as possible, it is time for comparison. Do not compare loans with different terms and conditions or different types of interest rates. For example, do not compare a loan with a fixed-term interest rate with one that has variable-term rates.
You cannot also compare a short-term loan with a long-term loan. This, therefore, means that whatever loans you are comparing must have the same principal (original amount borrowed), interest rate (that’s either fixed term or variable), and the same duration. With these, you can now check other fees that come with the loan and make your deduction. There are also online tools that can help you calculate when in doubt.
5. Know the Qualification Requirements
Most if not all banks and financial institutions have this information on their websites. Do not go blindly into applying. We believe this point is salient in tip No. 3 where we talked about exploring many options. The criteria for qualification from the different lenders are also a determining factor of the choice you will make.
6. Explore the Option of a Cosigner
Some lenders allow their customers to apply with a co-signer also known as a co-applicant. This person can be your spouse, business partner, parent, or whatever relationship is approved. Most financial experts recommend that you look out for this option.
The reasons for recommending this option include the following:
- Your combined income gives you a higher chance of approval
- You can get better terms and conditions and interest rates.
- You have shared responsibility to pay back the loan which makes the burden lighter.
Consumer Loan Tips – How to Manage the Loan
It is not enough to know how to get a loan; you also have to know how to manage the loan. The following are some tips to help you:-
1. Planto Repay In Large Instalments
The larger the installment you pay, the faster you repay the loan and this translates into a loan with cheaper rates. So at the end of the day, the total that you will repay is greatly reduced.
2. Look Out for Tax Deductions
It is important that you look out for every tax deduction that you can get on your loan. The laws that govern these deductions differ from country to country, region to region, and bank to bank. That is why you need to find out what applies in your region and with your financial institution so that you can avail yourself of this benefit.
3. Pay off Debt with High-Interest Rates Fast
If you have more than one debt profile, ensure that you make the one(s) with high interest a priority. Short-term loans, credit cards, and personal loans should be paid off as fast as possible. This is because you will be accumulating more debt through the interests that accrue the longer they linger.
4. Review Your Spending Habit
Once you have a loan(s) that you are servicing, you need to know how to organize your spending. Truth is that you cannot just spend anyhow; you have to be strategic with whatever you spend. Cut out frivolities and ensure that you spend on only essentials.
If you are an impulse shopper, work on it and discipline yourself so that you can stick to your budget.
5. Make Your Monthly Payments on Time
Following the tip of having a concrete repayment plan, you need to ensure that you make your monthly payment on time. Make your repayments a priority. This would affect your credit rating positively.
Apart from late payment fees for defaulting, your credit rating will reduce when you constantly default on your monthly payment.
6. You Can Increase Your Monthly Payment
This is a strategy that can help you sort out your debts as fast as possible. We know we spoke about paying off your loans in large installments, but you can always increase them. Let’s say you get a raise at work; instead of using the surplus income for luxuries, you can channel it to servicing your loan.
Since you were surviving on the income you had, you can train yourself to continue with the same living standard until your debts are paid off.
Conclusion
Financial stress is one thing that can lead to several health issues. While it is true that consumer loans can help to alleviate this stress, they can also add to it.
We have shared tips on how to get the best loan for you and also how to manage the debt when you receive the money. We believe that the tips we have shared will come in handy whether now or sometime in the future so bear them in mind always.
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