No debt is good debt – a common belief held by many people who are opposed to borrowing money and prefer to use their savings to fund a purchase. Of course, having a fund in your savings account is better, but it’s not always the case for some (read more). According to experts, there is no easy, obvious solution to the question of whether saving or taking out a loan is preferable.
If you’re lucky enough, there are some instances where you do not need to borrow from a lender anymore. But the inability of people to cover their living expenses with their income varies greatly.
When having debt was frowned upon before, borrowing money today is considered perfectly normal and acceptable. In fact, consumer loans are getting pretty popular nowadays. Whether you’re making a large purchase or need extra cash to pay for your tuition, home improvements, or consolidate high-interest debt, you might want to consider getting a consumer loan.
What Is A Consumer Loan?
A consumer loan can either be secured or unsecured. Secured loans require you to put up something of value as collateral in the event that you are unable to repay your debt, while unsecured credits allow you to borrow the money directly without putting your home or other assets at risk. At the same time, you can use it to leverage significant gains.
Many people prefer having unsecured loans most of the time. Still, it depends if you have an excellent credit history to get one.
Why Consumer Loan?
Another reason people seek consumer loans is to consolidate and pay off smaller credit, such as credit card debt, which has a higher interest rate if not paid on time. One of the best ways to get a loan is to find ones with low-interest rates. In the same way, having many options to choose from serves multiple purposes for you to find the best and suitable loan for your needs. Each can be used to finance the purchase of a vehicle, daily living expenses, education, or other personal goals.
Types Of Consumer Loans
1. Auto Loans
A car is often the second-largest purchase that you can make after your home. An automobile, for example, is a depreciating asset, and most people cannot afford to pay cash for one. With that being said, getting a loan to finance your purchase is a good thing, too! Through an auto loan, you can borrow money to acquire the vehicle of your choice. Another perk is that auto loans are often low-interest lending with 3-5 years of payment, depending on the lender.
Auto loans make vehicles that can cost large sums of money more bearable by dividing the high cost into monthly payments tailored to your budget.
2. Student Loans
Higher education is increasingly being viewed as a long-term investment in one’s future success. At this time, if you’re struggling to finance your education, a student loan can be beneficial to your career. This type of loan is often backed by the federal government, which makes it simple to qualify for, even if you have no credit. Take note. They also have low interest rates!
Furthermore, student loan payments are typically withheld until after you have graduated from college. And costs are spread out over several years, resulting in manageable monthly payments! You can use this loan for your tuition and fees, housing (dorm) expenditures, transportations, food expenses, and your school supplies.
3. Personal Loans
Personal loans are a sort of credit that customers can use for several personal purposes, from auto repair charges to house renovations and emergency funds, like medical expenses. Unlike auto loans or mortgages, there is practically no restriction on using the funds with personal credit. Simply put, it makes a popular financing choice for being versatile among other types of consumer loans. In fact, you can even use it for your vacations.
But most of the time, they are usually made to console an existing debt. For example, when a credit card amount is not paid off in full, interest can quickly accumulate, making personal loans more convenient for debt consolidation. However, the term lengths are typically under ten years. Also, the maximum amount is generally set at $100,000 and should be paid through monthly payments. At the same time, getting a personal loan doesn’t require you to pledge collateral in return.
According to a study in 2019 from Experian, most Americans are taking personal loans for:
- 28% for large purchases
- 26% for paying off other debts
- 17% for home renovation and improvements
- 9% for refinancing
- 30% for other reasons
If you’re planning to finance a home in your next purchase, a mortgage loan might be for you. Since buying a home—in cash—is difficult for the majority since most house properties today cost significantly more than the average person’s annual income, mortgages are designed to make home ownership more accessible. A mortgage will typically have an extended loan term of approximately 15-30 years, depending on the agreement between you and the lender/bank.