Loans can be immensely beneficial in various situations. This is given how they provide individuals with the means to execute various projects even while they lack the out-of-pocket funds to do so. But as helpful as they can be, they can be a pathway to financial crisis.
Lots of people in places like Norway have found themselves in this situation because of their inability to repay their debt. This calls for the need to carefully assess repayment capabilities before securing a credit line.
Additionally, the need for low-interest consumer loans has never been more important as they are easier to repay. Prospective borrowers, therefore, need to understand how to get such. Fortunately, that will be discussed here. So, continue reading to find out what you need to do.
Strategies for Getting Low-Interest Consumer Loans
Getting a consumer loan with low-interest and favorable conditions is indeed possible. The fact that there are many creditors available means prospective borrowers have an advantage in this highly competitive credit market. However, the chances of securing such are very slim when people are not well-informed on what to do. To this end, here are some helpful strategies:
Work on Your Credit Score
There are some general rules in this market. One such is how those with high credit scores stand a better chance of landing reasonable loan deals. It is typically the opposite for applicants with below-average or poor scores. The score is from zero (0) to a hundred (100). Let us see an example of how this impacts loan costs.
The interest rate for individual A with a score of 73 who secures a loan of 150,000 Norwegian kroner is typically between 7 to 10 percent. On the other hand, individual B with a score of 40 who secures the same amount can be tied to an interest rate of between 12 to 17 percent. The unfavorable difference is because of the low score.
Individual B should be able to get a loan interest rate of between 9 to 14 percent if the score can be raised to 51. In essence, make a conscious effort to improve your credit score.
Explore the Credit Market
Borrowers have an advantage in the credit market. Unfortunately, many people are not well aware of this and largely explains why they often settle for less. The advantage is that there are many creditors available.
The competition means that some creditors will be willing to offer better deals than others would. The goal should be to find the best but this requires serious exploration of the market.
With the use of comparison tools, you can secure lavest rente forbrukslån (which is translated as lowest interest consumer loan in Norwegian). These tools are made available on several online platforms that educate borrowers on the financial market and help them make informed decisions.
A financial brokerage service can also help borrowers better explore the market. There is even the possibility of landing better deals with a good broker.
Consider Using Collateral
We did mention how there are general rules that apply to the financial market. Besides the example above, another is that secured loans typically have lower loan costs than unsecured loans. The significantly reduced risk on the part of the creditor explains why this is the case.
A secured loan means that the borrower will have to provide acceptable collateral. This could be a real estate property for instance. The implication is that the creditor has the legal right to claim or withhold the collateral if the borrower does not abide by the agreed terms.
An unsecured loan means that the creditor is only banking on the borrower’s proven creditworthiness. Regardless of how creditworthy the applicant is, this is a risk and it explains why these credit lines usually have higher interest rates.
For the sake of getting low-interest consumer loans, you may want to consider secured instead of unsecured credit lines. However, this is provided you have acceptable collateral and you are certain repayment will not be a problem. This is because of the possibility of losing your collateral if you default.
Consider Short-Term Repayment
People who opt for long-term repayment options usually have to pay more than those who choose short-term repayment options. The former may seem convenient for most people but it significantly increases the loan cost. Here is an example to justify this.
Imagine individual A has to repay a loan of 150,000 Norwegian Kroner with an interest rate of 9 percent in 4 years. By the way, repayment is usually in monthly installments.
You would have to multiply the borrowed amount with the loan term (in years) and the interest rate to get the total interest that will be paid. In other words:
Entire Interest Paid = Borrowed Amount x Loan Term x Interest Rate
In this case, that would be:
150,000 x 4 (years) x 0.09 (interest rate) = 54,000 Norwegian Kroner
While Individual A took out a principal amount of 150,000 Norwegian Kroner, an additional amount of 54,000 Norwegian Kroner will be paid as interest. This is a little over a third of the principal amount. Let us see another example to justify the cheaper cost of short-term loans.
If individual B borrows the same amount with an interest rate of 9 percent but chooses to repay in 1 year. This is the implication below.
In this case, the entire interest that would be paid would be:
150,000 x 1 (year) x 0.09 (interest rate) = 13,500 Norwegian Kroner
Short-term repayment plans are cheaper as seen with the two examples above. So, you may want to consider it. Just make sure you can cope with paying large amounts spread across a shorter period.
Negotiate
Do not approach creditors with the mindset that they hold all the cards. You have an advantage in the highly competitive credit market. This means that terms and conditions by creditors can be negotiated.
It starts with going through and understanding every one of the terms and conditions. Next, make sure the terms and conditions are reasonable and that you are fine with them.
For example, you may not be fine with the inclusion of a prepayment penalty clause in the agreement. Things like this are open to negotiation.
Consider Online Creditors
The emergence of online creditors has only made the credit market more competitive for traditional lenders. Furthermore, online creditors run on significantly reduced operational costs compared to traditional options.
As a result, a lot of them are more than willing to offer very improved loan terms and conditions. This could be a very good reason to consider getting your consumer credit line from them.
Ensure Employment Stability
The lower the risk involved in granting you a loan, the higher the chances of getting lower-interest consumer loans. Having a good credit score helps.
However, there are other things that creditors are going to look at. Your employment status is one of them as it strongly determines your ability to pay back. Someone who is constantly in and out of jobs is considered risky by lenders.
This is why you should do all you can to ensure employment stability. This increases your chances of getting low-interest credit lines.
Ensure Income Stability
Prospective lenders should easily figure out what you earn. This could be an estimate but this information is critical as it equally determines your ability to pay back. So, work on improving your income status or ensuring its stability, at the very least.
Conclusion
High-interest consumer loans with unfavorable loan terms and conditions can be a quick pathway to a financial crisis. This is why prospective borrowers need to understand and work towards getting low-interest credit lines.
There are proven strategies to make this happen as discussed here in this article. Prospective borrowers will be better off putting these helpful tips to good use.
