Are you looking to finance your dream wedding, or purchase a car? What about plan a large event and rent out a special venue? Maybe you’re even renovating a room in your home or repairing something that’s broken. If you answered yes to any of those questions, you might already be considering taking out a personal loan, also known as a forbrukslån.
They have many uses and applications in our lives, and many of us end up with some form of debt at some point. In fact, it’s advised that you have some debts and pay them back to help you build up a credit score. If you’re not sure what that is, I’ll be explaining further below.
Before we get there though, let’s establish what a loan is. It’s a form of credit in which you borrow money for a lender and make a repayment plan. Said plan can vary depending on who your lender is and what sort of financial situation you are already in. Something to keep in mind when it comes to them is that the company or person you borrow from often charges something known as interest.
This is a fee for using the funds they are providing. There is simple interest and compound interest, both concepts I recommend learning more about if you are unfamiliar. To briefly explain it, they are determined by a few external factors like the government of your country and the rates of inflation that exist.
While borrowing, you might find that you have a few options to take. For example, there are secured and unsecured loans. You could also end up borrowing a one time lump sum, or have a personal line of credit that allows you to use the loan several times.
Credit Scores and Why They Matter
Many of us have heard horror stories about credit cards and how they can lead you to having insurmountable debt if you use them unwisely. Don’t let this scare you off this entire concept, though. Your credit score is a number that tells lenders how likely you are to pay them back for money you have borrowed.
If you’re wondering how this is calculated, a few facets go into it. First, there is the history of your bills. Do you pay them on time? How many times have you been late? These statistics are considered in the overall scoring you receive from the credit bureaus.
Next, they consider what debt you currently have. Specifically, they look at your unpaid debts. This will have a negative impact on your score, especially if you have a large amount. Those of us with student loans know this all too well, unfortunately.
The number of different accounts you have open also plays a part in this. If you have one debt holder, that is usually better than owing several different companies or organizations money. That is why some people utilize something known as a debt-consolidation loan to combine what they owe into one account.
Along this line, the length of time you have had said accounts open are also considered. The longer your balances go unpaid, the more of an effect it can have on your financial health. That’s part of why you should do your best to pay as quickly as you can.
Depending on your lines of credit, how much of them you have used also has an impact. So, if you have a credit card that allows you to spend one thousand dollars at a time, it might reflect poorly on you if it is always maxed out. Try not to do this.
Finally, any inquiries from credit card will show on your report. Any previous defaults or declarations of bankruptcy are also there. All these things work together to create what we call a credit score. In some ways it’s a shame that these three numbers impact our lives so significantly but informing ourselves on this means we can do our best to improve our score.
What Does this Mean for Loans?
Now, if you are looking for a billigste forbrukslån (inexpensive loan), the number from above will determine the variance of options available for you. This is because often the interest rates or APR percentages are based on what our scores are.
Like I mentioned above, they tell a lender how likely you are to pay back a loan. So, the higher your score, the more trusted you can be. That means, of course, that you will be able to enjoy lower APR percentages. Companies that offer funds like this don’t need to secure themselves with high interest rates.
Something you’ll want to keep in mind as you search for a loan is that a lot goes into a contract for one. You will have to sign a form of agreement that outlines how payments will work (for example, installments versus a fluctuating amount), the length of the repayment period, and what the principle is.
If you’re going with a secured one, your collateral will also be discussed. A common example of this is when you get a mortgage, because most people have one when they purchase a home. However, there are options for cars or other valuables as well.
Pawn shops are a common source of these “secured” loans. If you bring a valuable item into one, they can give you a cash advance and keep said item as collateral. If you are unable to make payments on time, they will keep your item. That’s part of why I don’t recommend using a pawn shop loan – it can be quite risky.
I alluded to it in the previous section, but there will be an agreement between the lender and the borrower. The first step is usually providing your own documentation. This will include any forms of identification you can show, as well as what your plans for the money are. With some forms of loans this needs to be a specific plan.
However, with many personal ones, you can use the funds for anything you want (within legality, of course). This means that you won’t need to provide anything concrete during an agreement session. Just make sure you are not borrowing money for an entirely frivolous reason, because debt can creep up on you quickly.
Usually, you will agree upon a certain length of time that interest can be collected on your principle. There will also likely be a limit on how long it can take you to pay it back. Read any paperwork and documents closely to get a better understanding of the terms and to protect yourself.
Why You Might Get One
Usually, we get loans because we have an expense we cannot cover entirely on our own. A typical example of this is when we are purchasing a car. You can get a specific auto-loan for some additional perks in some cases, but it is not necessary.
Throwing a large event is another reason. If you are having a party for a business or other reason and it needs to be perfect, you might borrow some money as a slush fund for getting everything just right. This is best done if you have a definitive plan for paying it back.
If you have a business, you might get a loan for it. Usually, this is done to get some additional products up front or to pay website fees as you are first getting started. While there is some risk involved due to the nature of having our own company, it often ends up being worth it. It’s an excellent resource for anyone with a small start-up.
Of course, many weddings are paid for with some form of loan as well. Dresses in particular are quite pricey, especially if you are set on a certain style. Depending on how ornate it is or how expensive your taste is, you could be paying several thousand dollars. A personal loan could help pay for this.
Finally, you could use one for renovating your house. Depending on the room, there are many costly things that go into this process. Kitchens and washrooms tend to require a lot of funds up front. Getting the appliances that you want, or the countertops is a process that could be sped up with a personal loan.
At the end of the day, it’s a decision that you are responsible for. No matter what advice I provide, you’re the one who decides whether to take it. If you have a lot of debts already, you may not want to get a personal loan. The APR rate you are offered probably won’t be great.
However, for anyone looking for a good deal, there are ways you can shop around and find rates that suit you. My advice is not to limit yourself to local online providers. Turning your gaze to Europe, such as a country like Norway, can improve your chances of finding a smaller interest rate.