Credit is a cornerstone of the world’s economical trade. It is what helps the consumer and seller in commerce. It is the unspoken trust between the lender and the borrower. But what exactly is credit, and how does it work? How can you make credit and loaning from it work in your favor?
What is Credit?
To define it simply, credit is the ability to borrow money from another party and pay them back at a later point of time; usually in addition with interest or fees. It is a professional and economical form of trust, an unwritten agreement that beholds you to pay back what was owed.
How to Earn and Build Credit
The most simplistic way to earn credit is to have a credit card. These are pieces of plastic with lines of credit attached to them. They can be used at almost any store and work as an intermediary between you and your available credit. When you use a credit card, and pay the money owed upon it, you build even more credit.
You can also become an authorized user on the account of a fellow family member or spouse who has credit. Doing so will give you access to their credit line and their perks as well. But be careful with this method, as your spending will reflect on them.
Another way to build credit is to take out loans. Now these can come in a variety of different forms, such as consumer credit loans or personal loans, but the way they work is almost the same. You borrow money from the banks, usually a sizeable sum of it, and pay it back over a period of time.
On the subject of loans, that is actually the topic of this article here. You now know the basics of credit, and you may be thinking about wanting to open a line of credit for yourself, a large line of it. But before taking that plunge, it is important to know more about loans; specifically, about credit loans.
What are Credit Loans?
A credit loan is something very similar to another type of loan called a repayment loan. The latter is a type of loan where you give repayment to the capital, or the amount you borrowed, along with interest each month. So basically, it is a series of payments with extra money given every month until the amount you borrowed is paid for in full. This is really how most loans work.
However, a credit loan, while similar, is a bit different from this type of loan. In a credit loan, you are given a line of credit that is available for use freely, in the sense that you can take it out immediately. The catch is, however, is that it is not paid to your account; you have to get it directly from the bank. It is a line of credit without a credit card.
Now why would you want to get a credit loan? There are quite a few advantages when you’re in possession of this particular line of credit. These advantages include:
- Flexible repayments – the repayment on a credit is always predetermined in advance, and the monthly amounts you pay to the servicer are equal every month until the balance is paid off. You pay the loan off the same way you would originally with a credit card, and you can pay any amount you want so long as the minimum amount is paid. This type of flexibility in repayment is very nice to have if you find yourself low on funds but be warned: the smaller the payments you make each month, the more expensive the loan will actually be.
- No end dates – a loan of credit doesn’t have an end date the same way as something like an unsecured loan does. The credit loan is settled in accordance to the actual repayment plan. You continue to pay installments in accordance to what you agreed on with the bank. When those installments are paid off, the entire debt is terminated.
- No security required – unlike most forms of loans or credit, you do not have to provide collateral for a credit loan. This means that anyone of legal age, or the age that is required by the bank, can obtain legal financing for themselves. That isn’t to say that all credit loans are without collateral, as some do have it.
- Cheaper – credit loans in the long run can be cheaper than credit cards. The terms on a credit loan that you get tend to be the same as what you would get on a regular that did not have collateral, which makes their interest rates from 5-6%. In contrast, credit cards can have a number of different interest rates anywhere from 20-40%
Did You Know?
The interest rates on credit loans or consumer loans are determined mainly by two components:
- Loan Amount- a larger loan to credit will usually have a lower interest rate than a smaller credit loan.
- Credit Score- if your credit score is high enough, you can expect much lesser interest rates than if your credit score was lower.
Despite all the positive buzz I’m giving them, like anything that seems too good to be true, credit loans are not without their disadvantages. There are downsides to using them, particularly if you don’t use them correctly or responsibly. These disadvantages include the following:
- Minimum Payments, Maximum Troubles – as stated earlier, if you were to constantly pay only the minimum amount due on a credit loan each month, the credit will eventually end up becoming more expensive than a basic repayment loan.
- Temptation – this can go with any line of credit that gives you an imaginary line of money. It can be tempting to use your credit, especially in situations where it might have been best to save up your money instead. If you don’t manage it responsibly or don’t have much discipline, your benefits will soon enough become detriments to your credit.
- Unpredictability – your borrowing costs will be less predictable than on a repayment loan.
- Rare – there are not a lot of banks that offer credit loans. This makes the competition for getting one low, which in turn means the probability of finding the best interest rates won’t be as good as those on loans without collateral.
How Do You Get a Credit Loan?
For the banks that do offer credit loans, you can send in an application to them. They will usually answer your application the same as you applied, even answering as swiftly as within a few hours. It is quite rare to have to wait for an answer to your application for more than a day.
What Credit Loan is the Best for You?
Now this all depends on a variety of factors, and most of those have one important piece to fit into the mix: you. The credit loan that’s best for you will usually depend on your own circumstances and preferences. There are of course other things to consider like credit ratings or repayment periods, but again, that all falls on the ability of what you can manage.
Types of Credit Loans
There are a great number of credit loans to choose from when making your choice. I could go over all of them, but that would make this article longer than it already is; much longer in fact. So, for the sake of time, I will be listing only a few of the credit loans currently on offer for you to consider.
1. Santander Consumer Bank
- Loan Amount- 10,000-350,000 NOK ($924-32,200)
- Effective Interest Rate- 8-29%
- Age Requirement – 23 years old and above
- Income Requirements- 200,000 NOK ($18,400)
- Repayment Period- 1-5 years (for consumer loans), 1-15 years (for repayment loans)
Pros – attractive interest rates, manageable monthly payments, and no initial borrowing costs.
Cons – higher requirements of age, high fees for loans over 70,000 NOK
- Loan Amount – 10,000-500,000 NOK ($924-46,000)
- Effective Interest Rate – 5-28%
- Age Requirement – 20 years old and above
- Income Requirements – 120,000 NOK ($11,000)
- Repayment Period – 1-15 years
Pros – There are plentiful loan offers, the customer service is excellent, the application process is speedy, and the interest rates are competitive
Cons – There are relatively few types of loans and banks available.
- Loan Amount – 10,000-600,000 NOK ($924-54,800)
- Effective Interest Rate – 5-21%
- Age Requirement – 20 years old and above
- Income Requirements – N/A
- Repayment Period – 1-20 years
Pros – Cooperates with Norway’s largest banks, offers from up to 25 banks, can apply for high amounts of loans up to 600,000 NOK ($54,800), simple yet efficient application process, all applications are free to apply for and non-binding
Cons – No guarantee that you will get the offer
4. Nano Finans
- Loan Amount – 5,000- 600,000 NOK ($457-54,800)
- Effective Interest Rate – 5-26%
- Age Requirement – 18 years old and above
- Income Requirements – Registered income
- Repayment Period – 5 years
Pros – Only one application needs to be submitted for multiple potential offers, no commitment necessary even after applying for a loan, free to apply for, websites are clear and informative.
Cons – Not easy to find price examples
These are only a few of the offers available. You can find plenty more from different companies on sites such as billigste kredittlån and others that can help you make the informative choice on loans and credit.
To be a holder of credit is to hold a major responsibility; one that if you are not careful with, will break you down just as surely as it can build you up. So be responsible when applying for credit loans, no matter how easy or simple they may seem.You may also like:
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