Consumer loans are any loan type given to the consumer by a creditor, either an unsecured or secured loan. That means that there are multiple types of loans that fall under the consumer loan umbrella. In this article, we will break down some of the most common consumer loans and look at their assets.
The top 5 consumer loan types:
1- Mortgage Loan
Use: Mortgages are used to finance or refinance the purchase of a home.
Pros: Provide a large amount of money for the quick purchase of a home. Most mortgage loans have a fixed interest rate which provides a fixed loan payment, but other options exist. A pre-qualified rate lock allows you time to find a home within your budget.
Cons: A mortgage is a secured loan using the home as your collateral asset. This loan is often for an extended 30-year loan term. A mortgage loan also comes with the added expense of closing fees.
Loan details: A mortgage loan has a fixed APR and a close-end loan term, usually 30 years. Money FCU offers a competitive rate varying depending on the loan amount and loan term. See mortgage rates online.
2- Auto Loan (new and used car loan, truck loan, RV loan)
Use: Auto loans are used to purchase a multitude of vehicles, either new or used. Vehicles include cars, trucks, motorcycles, and more. Auto loans often encompass any means of transportation.
Pros: Consumer loan auto loans through a credit union often provide lower rates than available at the dealer. You’ll get quick answers to approval and rates. Consumer loans also include auto refinancing. Many lending institutions give you a rate lock for a specified amount of time, allowing you time to find a car within your budget. You can pay off auto loans at any time without early termination fees.
Cons: The main downfall of an auto loan is the depreciation rate of vehicles. Autos depreciate quickly. Credit score determines rates and the maximum loan amount.
Loan details: Auto loans have a fixed interest rate and a close-end loan term. Money FCU rates vary depending on the age of the vehicle and loan amount. See auto loan rates online.
3- Personal Loan
Use: By far, the broadest category of consumer loans is the personal loan. Personal loans come in a variety of styles and amounts, ranging from small to big. The terms vary depending on the specifications of the personal loan itself. Personal loans include the home improvement loan, debt consolidation loan, line of credit loan, credit builder loan, saving secured loan, holiday loan, and the generic personal loan used for almost anything.
Pros: What is a benefit of obtaining a personal loan? Personal loans come in so many different styles you’re almost guaranteed to find a loan that fits your situation. Another pro of personal loans is they come in both small and large amounts.
Cons: Credit score determines rates and the maximum loan amount. These can carry higher interest rates because there is no collateral like an auto or home equity loan.
Loan details: Being as there are multiple personal loans to choose from, the loan details greatly depend on the terms of each specific consumer loan. Personal loans loans have a fixed or variable rate depending on the loan type. Furthermore, personal loans also fluctuate in open-end or closed-end. To learn more about which specific loan you are interested in, choose the individual loan type and look into the loan details of that particular loan. See all personal loans Money FCU offers.
4- Student Loan
Use: Student loans are used in funding furthering education, including school tuition and board, books and educational supplies, and more.
Pros: Student loans provide a large lump sum to make school tuition affordable. Money FCU offers student loan refinancing to combine all loans for easy money management. Student loans have no application fees. Lenders offer loan deferment while the borrower is still in college.
Cons: Consumer student loans have a $50,000 borrowing limit. Undergraduate student loans define interest rates on the prime index and credit scores.
Loan details: A student loan often comes as a variable rate loan, but some fixed rate options are available. This type of loan is a closed-end loan term. Money FCU rates vary depending on the prime index. See student loan rates online.
5- Credit Card
Use: Credit cards are most commonly used for everyday purchases, from small to mid-range buying and expenses.
Pros: A credit card is often easy to apply for and has less stringent approval guidelines. Credit cards provide you easy access to a line of credit at any given time for convenient purchasing power. Also, a credit card often comes with customer perks.
Cons: Credit cards have the highest interest rate and highest compound interest. Credit cards determine interest rates on creditworthiness. Money FCU always encourages smart spending when it comes to credit cards. If you can’t pay it off within a month or two, don’t use a credit card.
Loan details: Credit card details vary based on the lender but often work with a fixed interest rate. Credit cards are the most common form of open-end consumer credit loan. See what Money FCU credit cards have to offer.
Are you a first-time loan consumer? Here are some great tips for consumer loan preparation.
- Make sure the loan payments fit into your budget. There are loan calculators to help you calculate your loan payments.
- Only get a consumer loan for the amount you need. An excessive loan encourages you to spend more than required and costs additional money in the long run. Remember, if you find the first loan did not cover expenses, you can explore a second loan or other options.
- Don’t stretch your finances so thin that an emergency will break the bank. Have a contingency plan or a small bit of savings in case of emergencies.
- Always do your research on loan rates, and what types of loans work best for your situation.
- Think about the long term and what the loan will cost over time, not just your short-term goals.
- Always pay your loan payments on time. Properly kept and paid loans will increase your credit score. Whereas late payments will adversely affect your credit score. To make sure you don’t forget and accidentally harm your credit score, you can often opt for automatic payment withdrawal from your account. Automatic payments maintain your good standing credit without having to think about if you remembered to pay the bill that month or not – keeping it simple.
Consumer Loan terminology.
Let’s look at some loan terms you may need a bit more information on to decide which loan types are best for you.
Understanding Fixed rate Vs. Variable rate.
Fixed rate loans provide an interest rate that stays the same over the period of the loan.
A variable rate changes throughout the length of the loan depending on the index. Your interest rate and payments move up and down according to the market index.
- Secured loan Vs. Unsecured loans.
Secured consumer loans use collateral to back the loan. That means you sign over ownership of an asset whose value can cover the loan if you cease payment or are in default. A secured loan is generally preferred over unsecured loans when the borrower needs a large lump sum of money. With the loan secured, the lender often grants larger amounts of capital. Lenders can afford to give more funding on a secured loan because their risk is lower since your collateral maintains it. If the borrower fails to make payments, the financial institution liquidates the collateral asset in order to collect outstanding payments.
Unsecured consumer loans do not require any collateral. Nothing is signed over to the bank to secure the funds you are borrowing. That means the financial lender is taking a more significant risk of loaning you money. Because of the higher risk, the lender generally grants smaller and limited amounts of money at a slightly higher APY. Also, unsecured consumer loans often have a shorter loan term for the same reason.
- Open-ended loan or closed-end loan date. What’s the real difference?
Open-ended consumer loans are a loan that does not have a specified end date. Some open-ended loans continue indefinitely, while others remain open for a specified period of time. Keeping the loan open-ended is known as a revolving line of credit because you may recurrently take out money as needed. These types of loans provide you a credit limit for use in any purchases. You will make payments and incur interest monthly until the loan is paid off or closed out. Open-ended consumer loans are suitable for general everyday purchases when you don’t have cash readily available. They also serve for many purchases or payments spanning months throughout a specified project. Open-ended loans are often considered when working with multiple contractors. We caution consumers to be wary of open-ended loans due to compound interest.
Closed-end loans have a preset loan term with a specified end date. The borrower makes a predetermined monthly payment for a specified amount of time until fully paid. This style is called an installment loan. Closed-ended consumer loans are typically for a lump sum provided for a specific purpose. You’ll make equal monthly payments with your interest already figured into the loan term. Close-ended loans are typical for medium to large loan amounts and come in secured and unsecured forms. These loans are generally not used for everyday purchases but rather for specific purchases or projects.
Are you ready to look at what consumer loans Money FCU offers?
Money FCU has multiple consumer loans to select from. Our friendly agents are always here to help you, use our virtual online assistant for text or live chat or call (315) 671-4000 to speak with a representative. Explore all your consumer loan options.
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