A consumer loan is a loan provided to citizens for any personal purpose, except for entrepreneurial activity.
Types of consumer loans
Consumer loans can be purpose and non-purpose. The first variety is intended for the purchase of certain services or goods, for example, when the buyer comes to the store and takes a loan for a washing machine. The second type is issued directly by the bank – when the borrower comes in the institution and fill out an application.
It is important that consumer loans can be issued not only in the bank but also online, which significantly saves time. You can easily check the rating of lenders and evaluate all the conditions that are offered on the market.
The main reasons to get a consumer loan
The main purposes of getting consumer loans are:
- Urgent expensive treatment. You can consider the option of consumer lending. Health is important;
- A calculated business plan. If you plan to start a business with a high probability of its development, you can think about getting a consumer loan, although banks began to offer specific business loans;
- Further education. If you plan to upgrade your skills in order to increase your basic income, this option is good;
- Failure of the necessary equipment. If you earn money using specific equipment and it brings you the main income, it makes sense to buy equipment us-ing borrowed funds to use it for its intended purpose;
- Buying a car after losing the existing one. This reason is justified if the car is a profitable part (taxi, trucking).
It is worth noting that often people buy household appliances using credit the borrowed money, organize events (weddings, banquets), expensive holidays abroad, and apartment renovation.
Should you take a consumer loan?
Modern living conditions are riddled with advertising and many obsessive offers to take a loan. The Internet and television are full of profitable offers from various banks, flyers with loan offers are scattered in the mailboxes, bank specialists call potential customers and offer the same loans.
ATTENTION: If you do not have an urgent need for a loan, do not take it, and reject offers. Under the most favorable and favorable conditions, you will be at a loss. You should take a loan if the goal is worth the overpaid money: health, education, and business!
Note: in order to correctly answer the question of whether to take a consumer loan for the purchase of goods or not, use a small test. Tell yourself what will happen if the purchase is postponed. If nothing bad happens, wait.
When you should not take a consumer loan
Well-thought-out marketing policy of banks with low-interest rate loan offers works – people borrow money. When is it not worth taking a consumer loan?
Note: if you have unstable income, any lending can lead to a debt hole! If the income is stable, the monthly payment should not exceed 40% of the salary.
According to statistics, people often take consumer loans to buy small household appliances. An overpayment may be more than 20% per year, but a person wants to have the thing right now and pay later.
You should not take consumer loans for goods or services that cost less than two total family income. You can just wait a bit and get these goods or services without paying for lender services. We are talking about money for apartment renovation, furniture, leisure, etc.
Often consumer loans are taken for corporate events, weddings, and anniversaries. This is a completely unjustified investment. Many people who have taken loans for this purpose regret it.
Consumer loans are the most loyal in terms of requirements for borrowers. Standard requirements are:
- The minimum age of the borrower must be at least 18 years. Some banks also limit the maximum age – it’s usually 60-65 years;
- U.S. citizenship, confirmed by a passport of a citizen;
- Permanent residence in the United States confirmed by registration;
- Working experience (usually at least 6 months);
- Proof of income.
Loan repayment. Early payment
Loan repayment is part of the borrower’s obligations. In accordance with the agreement, each month the borrower must deposit a certain amount into the bank account indicated. The amount will include the interest and part of the debt amount.
You can make payments through the online payment system, in the office of the bank in cash, through ATMs or terminals.
Reasons for consumer loan rejection
Often there are situations when the borrower perfectly meets all the requirements presented but still cannot get a consumer loan for his or her own needs. This is due to the fact that most banks use a special scoring program during the solvency calculation, which automatically calculates whether the borrower can pay the debt or not.
For example, a person with a permanent job and income of $500 contacted a bank with the purpose of getting a loan. It seems that this is an ideal borrower. Moreover, the program shows that such a client makes payments on time only in 98% of cases.
Based on this information, 98% of banks will please the borrower with the result, but 2% will force him or her to continue the search for lenders that offer consumer loan loans.
What is consumer loan refinancing?
In the conditions of fierce competition between banks, there are situations when a new banking product looks more attractive to the borrower – the loan rate is much lower, the term is longer. If you have already taken a loan, you can choose a refinancing loan. There may be many reasons for this procedure, but there is one goal – to reduce the monthly payment. It is possible to carry out restructuring both in the same bank and in any other. You need to re-examine the contract and conclude it.
Advantages and disadvantages of consumer loans
- the decision is made within one business day;
- the client immediately receives the funds that are so necessary for him or her;
- there is a possibility of early repayment;
- minimum paperwork required.
- the term is quite small, and the interest rate is high;
- the bank may require insurance;
- only official incomes are taken into account;
- strict age restrictions;
- if you fail to pay the debt on time, penalties will be charged.
It’s up to you to decide whether to take a consumer loan or not. In any case, there is no need to rush. You should carefully evaluate all the risks, get the necessary advice and determine how valuable a product or service is to you.