Consumer loans are an unsecured form of borrowing funds for the purpose of consolidating debt, paying for home renovation projects, planning a dream wedding, organizing a trip, etc. Banks set no collateral requirements when it comes to these products, meaning you should provide no security or pay a deposit to have your application granted.
Banks and other financial institutions use one’s finances and credit score as eligibility criteria. Having a better credit score will enable you to get a more favorable offer. Individuals whose credit scores are poor are less likely to have their applications approved. Regarding the sum you can apply for, lenders allow applicants to borrow between NOK 1,000 and NOK 600,000.
Moreover, lenders don’t demand to know what the consumer loan is used for. Once you have the money transferred to your account, you can use it for any purpose you find indispensable. Irrespective of the way you use the funds, the loan has to be repaid within five years. The only exception occurs when borrowing the money for refinancing, which prolongs the repayment period to fifteen years.
Prior to applying for a consumer loan, potential borrowers are advised to consider other possible alternatives, such as extending their mortgages or using a credit card. Nevertheless, the use of a credit card is only relevant if you require the money for a shorter time compared to the interest-free period of credit cards. After this period expires, the interest rates of credit cards are incredibly high. Find out more information about managing your credit cards.
How does the application process work?
If a consumer loan is your preferred choice, make sure to send applications to multiple providers at the same time. Another alternative is to use the services of a loan broker who will act as an intermediary between you and lenders. In such a situation, you’ll only need to send one application to the broker, who will then forward it to multiple lenders.
Irrespective of whether you apply directly or via a loan broker, the application process is fairly simple. The first task to perform is filling out an online form where contact information and other details should be entered. Other details that might be required are financial information, living conditions, family situation, and the desired loan amount. Make sure not to apply for a larger sum than you actually need.
The simplest way of signing the form is via BankID, referring to a provider that collects relevant documentation electronically. While the documentation can be sent by mail, BankID makes the process much faster. Submitting applications to various lenders is recommended for borrowers to compare different offers.
Borrowers should remember that consumer loans aren’t equally expensive. Providers offer different interest rates in addition to different fees. By comparing the interest rates of multiple lenders, you’ll notice that they range from below twenty percent to over 200%. The most convenient method for gaining information about different lenders is by visiting their websites.
Additionally, there are a couple of websites that make a comparison of different providers on your behalf. It’s crucial to remember that the interest rates provided before the application might differ from the actual interest you will be offered. Consequently, you know the real rate prior to receiving an answer to your application.
Consumer loans are considered expensive mainly because of the high-interest rates. Given banks require no collateral, it’s unsurprising for interest rates to be high. These rates are used to compensate for the lack of security, otherwise provided with secured loans. Besides the interest, there are extra fees that lenders require to manage the loan for you.
The most common fees include establishment, term, invoice, and reminder fees. For instance, an establishment fee is required by almost all lenders when creating a loan agreement. The exact fee amount depends on the loan size and the rates used by the bank. Conversely, a term fee is also known as an administration fee, which is paid each month along with the monthly installment. While some banks charge no such fee, others charge between 29 and 59 kroner per month.
The reminder and invoice fees can be both avoided. The former is charged when failing to make payments on time, whereas the latter is charged when sending an invoice in the mail. The invoice fee can be avoided by requesting an e-invoice. In contrast, the reminder fee can be avoided by paying your invoices on time. If you have issues with the payment, you should contact the bank to see if you can get a deferral of payment.
The repayment period is known to affect the costs. As previously mentioned, this period is flexible when it comes to consumer loans, with a maximum of five years for traditional loans. The reason why the repayment period has an effect on the total costs is its length. The longer this period is, the longer you will be obliged to pay fees and interest.
Total borrowing costs are affected by interest, fees, and the duration of the repayment period. For instance, a loan of 150,000 kroner with a repayment period of five years and an interest of 11.31% required borrowers to pay NOK 3,335 per month. The total borrowing costs are 43,481 kroner, meaning you will pay back 193,481 kroner.
The same amount with a two-year repayment period and interest of 11.73% requires borrowers to pay NOK 6,960 a month. Nevertheless, the total borrowing costs are much lower, 17,036 kroner.
A final note
Consumer loans are the quickest method of getting finances for achieving your desired goals!
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