Consumer loans are financial vehicles that help people get to their desired financial destination. There are different types of these loans and they include student’s loans, mortgages, auto loans, and personal loans.
These facilities help people to carry out different projects and then repay with interest at a later date. They come in two forms; those that are backed by collateral and those without collateral. In this article, we will focus more on those without collateral.
Consumer Loans Without Collateral
Like we mentioned briefly, a loan without collateral is also referred to as an unsecured loan. The key features of an unsecured loan are as follows:-
- The lender relies only on the creditworthiness of the borrower to give out the credit as against a secured loan that relies on the property or asset of the borrower.
- They are riskier for the lender therefore they come with higher interest rates
- Due to the risk involved, they also require a higher credit score than their secured alternative.
- In a situation where the borrower doesn’t pay back, the lender has to either hire a collection agency to get their money back or sue the borrower.
- Although the law protects the borrower from discrimination from lenders, the lender still gets to decide whether a borrower is credit worthy or not.
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Examples of Consumer Loans Without Collateral
Collateral is an asset that’s tendered for the procurement of a credit facility. Its use is that the lender has an asset of the same value or higher than the amount lent to hold on to if the borrower doesn’t repay as at when due. Consumer loans that have this requirement are classified as secure loans while those that don’t are classified as unsecured loans.
In this segment, we will discuss some examples of unsecured loans below:-
A credit card is most often a plastic card and it allows the holder to spend a stipulated amount for purchase of goods and services. The amount agreed upon has a set date that it has to be paid off. These cards are usually issued by banks or other financial institutions. Some of them come with reward such as points or cash back.
Just like other types of credits, you get money but unlike others, the money doesn’t come in a lump sum beforehand. The cardholder gets a stipulated amount that’s known as the limit over which they can’t spend. Then at the end of the month they pay the agreed sum to the issuer.
These financial instruments have their pros and cons which you need to know before you get one.
These are credit given to students to finance higher education. This helps them to take care of tuition, books, living expenses and all that has to do with their schooling. The interest rate for this kind of loan is significantly lower than many other types. This facility can be gotten from the federal or state government or private firms/organizations.
There are laws that regulate the disbursement and repayment of these loans. Anyone that’s considering taking out this loan needs to be fully abreast of recent laws and regulations so that they can get the best of it.
This is a credit facility given to an individual to meet whatever need that warranted them taking out the loan. Unlike a student or auto loan or a mortgage, one doesn’t have to state categorically what the money is intended for. Most lenders are primarily concerned with the creditworthiness of the borrower.
This oftentimes is the easiest type of credit to get and also the most abused (maybe closely behind credit cards). For this reason it is necessary that one is really financially disciplined before going for this option.
How To Make the Most Of Consumer Loans
Getting a loan sometimes is an inevitable option but how do you safeguard yourself and ensure that you do not end up worse off than before the loan? Below are some tips on how to make the most of getting credit:-
Carry Out Proper Research
Ensure that you do your due diligence of finding out all that there is to know about the loan you want to take. There are several things to look out for and they include:-
- Lender’s Reputation – Check out the reputation of the lender you want to get money from. Especially with online lenders, it is easy to fall prey to unscrupulous people who can endanger one’s life at worst or dent your reputation at the very least. So ensure that you will be dealing with people who are legitimate and follow laid down regulations for loan procurement and recoupment.
- Interest Rate – Compare interest rates across lender platforms. This will help you know which one is best for you
- Repayment Period – Also look at the repayment period across the choices you are considering. This will help you know how to plan your repayment.
- Other Terms and Conditions– Pay close attention to the terms and condition of the transaction so that you do not sign yourself into something you didn’t bargain for.
Have A Solid Plan For Repayment
It is funny how some people take out loans without thinking of repayment. They get excited at their bank balance without recuse to the fact that the money will be paid back and with interest.
Never take out a loan that your income can not handle over time. Factor in your monthly expenses, some unforeseen expenses and also the interest before taking out any loan.
Consumer loans from all we have discussed can be a life saver but only if managed well. We have shared tips on how to go about getting the most of it in this article. We hope you apply the principles so that you enjoy only the positives thereof.