A turning point in history happened when loans were introduced as a banking product. That is a promise that you give the lender that you will give them back the money over a certain period. Most people do not know that loans have been with us ever since the beginning of civilization. Let’s learn how should you get a consumer loan.
When a drought happened, the people who had more shared their vegetables and cattle with the people who did not have as much. In return, the borrowers repaid them back next year. The same thing became true when money was introduced. Click here to read more.
However, everything changed when banks and government institutions got this power. This gives the lender the ability to specify conditions that are justified by laws. For this case, there are two types of loans. The first type is a secure version.
This is when you want to buy an apartment, and the bank buys it for you. In return, you give a monthly payment to the institution if you want to keep the piece of real estate. The interest rates are quite low because if you fail to pay, they can just reclaim the property.
That is why there is a lot more trustworthiness in this scenario. On the other hand, there is also the option to get an unsecured version where you could use the money for anything you like. Because the lender cannot have anything in return for the money, the interest rates are automatically higher.
How does your credit influence the interest rates?
Financial institutions have been operating at a high level for more than 600 years. In that time, they have learned a thing or two about people. Here is all that knowledge summed up to see whether you agree. Let us have two people as an example.
Person A always pays their bills on time. Whenever they borrow money from a friend, they tend to call them after a day or two to give everything back. At the end of the month, they also have a little bit saved up because they want to go on a vacation during the summer. That is person A.
On the other hand, let us look at Person B. They are always late with their bill payments, and they often pay for their electricity a couple of days before the company notifies them it will be turned off. If they borrow money from you, they never give it back, and even if you remind them, that will not change the situation.
When summer comes, they call their parents to give them a few hundred bucks because they could not save up for a trip to the beach. That is person B. if you are the bank, who will you give a loan to? The obvious answer is person A, and that is how the entire credit score system works.
The more financially responsible you are, the better your rewards will get. If you maintain a score that is over 800, you are essentially living the best life since your conditions will be amazing. When you go to get a loan, the lending institution will do a complete background check to browse through your history.
That is a rigorous report, and it will determine what kind of loan you are eligible for. The better you manage money, the more confident the lender will be to give you a better deal. You could get a cheaper interest and a larger amount of money.
On the other hand, if your habits are like person B that we mentioned, then it is wise to wait up a bit and try to improve the score. There are numerous ways in which you can do it and try to be consistent with your payments.
How can you calculate the rates?
Let us say that you want to buy a new camera or laptop that costs 2 000 dollars. We are going to look at a couple of different ways that interest can be calculated. The loan you take will be called a principle, but you will always have to return a bit more because the lender helped you in an instant.
You are borrowing funds, but the interest rates come as a strawberry on top. The most straightforward interest rate is a fixed percentage. Let us say that it is five percent for the principle we mentioned above. This would mean that you would need to pay an additional hundred dollars when the period ends.
Compound interest, on the other hand, is something completely different. You want to avoid it as much as possible when you are borrowing money. But you want to invest in it when you are creating a savings account. Here is why. Let us say that your new laptop costs two thousand dollars. If the same five percent interest was added to that price the first year, you would need to pay a hundred dollars.
The year after that, you would need to pay an extra 105 dollars. That is because the second year’s interest will be added to the first one. You can go to http://www.billigeforbrukslån.no – billigste to read more. The more you wait, the worse it gets. There are also fixed and variable versions.
Regarding the fixed type, you settle on the price, and the number remains constant throughout the tenure. This is the easiest one to plan for. Finally, the variable version shifts with the market. Depending on the price fluctuations, your monthly payments will either increase or decrease during the specified period. This is the riskiest type of loan that you can take.
Where can you get one?
When it comes to getting money fast, there are plenty of options available today. That was not the case a few decades ago when you could only go to the bank. Now multiple institutions can give you the opportunity of a personal loan, but each one of them has its own advantages and disadvantages.
It is up to you to make a choice. The first option is, of course, the bank, which has stringent criteria when it comes to lending. If you are a repeating client, you could have more flexibility. Online services are on the rise at the moment since they don’t have any costs for having a physical place.
They need a fraction of the cost that is required to operate a bank which means you can have a lower rate and more speed. Plus, in the age of information, having access to your funds at any time is a nice privilege to have.
Finally, there are credit unions if you want to have a more traditional experience with a better rate. However, the main purpose of a union is to deal with specific cases since they do not work for profits. There are a couple of restrictions when it comes to using them, so make sure to schedule a phone call or send an email to see whether you are eligible.
All these places have their positive and negative sides. If you get a more flexible offer, that does not mean that you should skip out on payments. Refusing to pay your rate will massively decrease your credit score, and it could take years before you get it back.
In some cases, you also get penalties for paying off the loan too soon. For this reason, you need to read the fine print and ask questions before you borrow a large sum.