What is Consumer Loan?
A consumer loan is a type of credit which is provided to a consumer to help them finance only a set of specific expenditure and generally, this kind of loan may be secured i.e. the borrower has to provide a certain asset as a guarantee to the loan or it may be at times unsecured too based on the monetary value of the loan i.e. no asset backing of the borrower is required.
This can be used by borrowers to reduce their debt burden by means of consolidated loans. This process is also called refinancing, and people do this to get rid of the debt burden faster by availing refinance loans at a cheaper interest rate.
Personal loans also belong to the category of consumer loans, which help people fulfill experiences like traveling abroad or complete their education or even utilize the sum for any kind of small or major improvements in their houses. This comes handy both smaller and larger needs of the borrower.
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Types of Consumer Loans
- Mortgages: Mortgages are typically linked to buying a new house. This type is given by banks based on the credit score and the ability of down payment, which a borrower has to facilitate the need of buying a new house.
- Credit Cards: This is the most widely used and popular consumer loan. A credit card helps the borrower to purchase their daily need starting from apparels to grocery etc. by means of a credit line granted to them by the credit card company. The interest charges are a bit high in this case, and failing to pay attracts a high level of penalty.
- Auto Loans: Auto loans are typically meant for buying vehicles. These are generally available at the bank or the car dealership itself.
- Education Loan: Education loans are basically targeted to fulfill the education needs of students in terms of paying their college or tuition fees. This helps students to pursue their education, and the loan repayment starts when the student has graduated from college.
- Refinance Loans: A refinances the loan, as the name suggests, used to refinance an already existing loan. It can be used to refinance our car loan, education loan, house loan, and even credit cards. A refinance loan ideally has a fixed payment attached at a lower interest rate, which helps the borrower to close the earlier loan.
- Home Equity Loans: This is a kind of consumer loan where one can utilize the equity value of one’s home to borrow money. Typically this is used for making improvements to the homes.
- Personal Loans: Personal loans are used for catering to all the daily needs of the buyer and can work in a wide variety of purchases. Personal loans allow the borrower to just do anything with the money from repairs in homes to investing the money in business.
Who is Eligible for Consumer Loans?
The minimum eligibility to apply for a consumer loan is 21, and the maximum can go up to 60 years of age. If one is salaries the maximum age limit is 60 years of age, and if some are self-employed professionals it can go till 65 years of age. Also, this depends on bank to bank, and factors such as credit score are also taken into account.
Interest Rate on Consumer Loans
The below rates are based on rates levied in USA:
- Personal loans = 5% – 36% depending on credit score
- Education loans = 4.5 % – 6%
- Credit card = 13% to 16%
- House loan = 3.5% – 4%
- Refinance loan = 3.5% – 4%
- Auto loans = 5.3% – 6%
- Identity Proof: Driving license, passport, state ID, birth certificate, certificate of citizenship, utility bills, etc.
- Address Proof: Current rent agreement or any documents with the address mentioned.
- Income Proof: Banks statement, tax returns, and payslips.
- Other Documents: Current credit card statement or loan statement, an alternate source of income proof, current rent, or mortgage.
- Refinance a current loan outstanding.
- Pursue education and thus help in the payment of tuition fees.
- Buying a car for private or commercial use.
- Building a house or going for improvement or repairs.
- Aim to purchase daily needs like groceries or clothing.
- Easy access to funds whenever the need arises and in times of critical requirement.
- It offers to enhance financial flexibility ranging from various types of loans.
- It offers decent interest rates and is versatile in nature.
- They are good when it comes to debt consolidation.
- One can borrow the amount one requires, and loan approval is quick.
This has been a guide to What is Consumer Loan & its Definition. Here we discuss the interest rate on consumer loans, types, and who is eligible for this along with uses and benefits. You can learn more about from the following articles –