Forbrukslån – Pros and Cons of Consumer Loans
Almost everyone has been in a situation where they had more bills than money or had to juggle things around to sort pressing needs. Except for a few who are so wealthy they do not have to think about how bills would be sorted, the average person needs financial aid from time to time.
One of the ways that individuals who are cash trapped tend to get relief is by getting loans. People need help in getting a home of their own, buying a car or paying for college. While it seems quite easy to get a loan, is it the best alternative?
In this article, we would discuss the major advantages and disadvantages of taking out consumer loans.
Types of Consumer Loans
Consumer loans comprises of the following:-
- Mortgage– This is a credit line that’s extended for the purchase of a home or one that’s taken out against the value of one’s home. It is a secured loan because the house is the collateral and can be used to recover the debt if the borrower defaults.
- Student Loan– This is credit that’s given to help finance tertiary education. This covers everything that has to do with the borrower’s school expenditure. It is not a secured loan.
- Auto Loan – This credit facility is given for the purpose of helping the borrower buy a car. The car is the collateral for the loan and can be repossessed if the borrower defaults. This therefore makes it a secured loan.
- Credit Card – This is a kind of revolving line of credit in which the card holder uses the card for purchases and repays the issuer on a given date. Most credit cards have monthly repayment dates with different interest rates. Every card issuer has its terms and conditions which the card holder must adhere to, to avoid defaulting and ultimately penalty.
- Personal Loans – Just as the name implies, these are credits given to individuals to maybe sort out some bills. It is not attached to any specific project like buying a house or a car.
Now that you have seen the types of consumer loans that are available, let’s go on to look at the pros and cons of taking out these loans.
Pros of Consumer Loans
Provides Fast Solutions To Financial Issues
Imagine that you had to save up enough money to buy a home, how long do you think that would take? Same goes for purchasing a car or other projects that require a good sum of money. Lending institutions come to the rescue by providing the lump sum to carry out these projects and then receive repayment in instalments.
In situations where one needs a personal loan, there are many lenders (especially online) that can make the money available in less than 48 hours. So imagine that one is in the middle of an emergency where a small loan would make a huge difference? Some lives have been saved all thanks to the availability of loans that can be expedited in record time.
Provides Flexible and Versatile Financial Solutions
Consumer loans can either be open ended or close ended. This refers to the method through which the loan is provided. With open end credits, the borrower can borrow whatever amount they want until they get to the fixed limit after which they have to pay off the debt on or before a fixed date. Credit and debit cards are examples of open end credit/loan.
Close end loan refers to a situation where the loan is given in a lump sum for a project and repayment is done over a period of time. Car loans and mortgage fall under this category.
With these categories, you can see that the consumer has many options to choose from. No matter the financial bind that a consumer finds themselves in, there is always an option that would serve the person well.
There Are Many Lenders To Choose From
There are many banks and financial institutions that one can approach for consumer loans. You can get a close end loan from one bank and an open end from a financial institution. You are not tied down to any particular lender.
Due to the proliferation of these institutions, you stand a better chance of choosing the one that gives you the best deals. For example, if you are looking for an unsecured loan, you can check out a number of online lenders. You can klikk her (click here) for more resources on how to get the cheapest loans without collateral.
Additionally, online lenders are fast to attend to queries and give the customer the opportunity to make several inquiries at once. While doing so, customers can compare the interest rates, repayment durations and qualification requirement for loans.
Cons of Consumer Loans
One Can Get Easily Carried Away
In days gone by, it was not quite easy to get a loan. This was because there were limited sources where one can get an advance for personal expenditure. However, in these day and age, there are literally thousands of financial institutions world over. People from all walks of life are able to get cash advance when they need them.
Due to how easy it is for people to get loans these days, it is also easy for them to throw caution to the wind. This has landed a lot of people into big trouble. Credit cards are one of the biggest slave masters that a lot of consumers have.
Some cards come with a lot of incentives that blind the unsuspecting and before you know it, you are in a pile of debts.
There are Tax Drawbacks
Since most consumer loans are meant for personal expenditures, they do not come with tax exemptions. You have to pay off your debts with interest and also pay tax on it. However, consumer loans such as mortgages are tax deductible but only to an extent.
You need to research thoroughly when it comes to loans and taxes. This would help you to know how far to go with your loan and also how to manage your finances.
Conclusion
Having examined the pros and cons of consumer loans in this article, we believe you have enough information to make the right choice. Taking out credit to carry out projects or meet some urgent personal needs is not bad but one can easily get into debt if care is not taken. It is therefore important that you weigh all the odds, have a solid repayment plan and then stick to it.
Ensure that you check out various lenders and their terms and conditions before you take the plunge. Always take your time, do not allow desperation to lead you into making uniformed choices.