The global economy is driven by loans and debt. Without financing, people could not enjoy the luxuries of a vehicle or home.
In the United States alone, there is nearly $14 trillion in outstanding debt. More than 189 million Americans have a credit card. Many more have personal loans and other forms of financing.
Read on for a simple guide to consumer loans. Explore the basics that you need to know to about the loaning process. Also, we will discuss financing topics like types of loans and how to apply.
What Are Consumer Loans?
Not every person has the money in their account to make a purchase. This does not meet that they are not good for it.
With a consumer loan, you can get the money lent to you upfront. This way, you can buy the item you covet and pay it back over time.
What Type of Loans Are There?
Consumer loans represent a broad category of lenders. Of course, we are talking about major loans like mortgages and auto. There are also student loans and other large purchases.
You can sometimes get a consumer loan at certain retailers. For example, many people rely on these loans for purchasing furniture or swimming pools.
Do You Need to Put Up Collateral?
Some lenders require you to back up the loan with collateral. This is the lender’s way of addressing risk of default. They do not want to be left high and dry if you are unable to pay the loan back.
Loans that require collateral backing are called secured loans. Obtaining a collateral loan results in more favorable terms to the borrower.
There is less risk to the lender since they can seize your assets if you fail to pay the loan back. Because there is less risk, secured loans have longer loan terms and lower interest rates.
If you do not put up collateral, it is called an unsecured loan. Since there is more risk associated with an unsecured loan, you are likely to see smaller principal amounts and higher interest rates.
How to Apply for Consumer Loans?
The application process for a consumer loan depends on the lender. The turnaround time and the documents required differs based on the loan type and how the industry is regulated.
There are some standard documents and information that are typically required for a loan application. You will most certainly have to identify your annual income. Most lenders require substantiation of your income with a tax return or paystubs.
In addition, you will have to provide your social security number. This is used to run your credit report and evaluate your creditworthiness.
Summarizing the Consumer Loan
Now that you understand the basics, you are ready to apply for a consumer loan. Whether you are looking for a new pool or kitchen, a consumer loan will help you secure the cash you need. The requirement to put up collateral is one key variable for how much your payments are.
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