Consumer loans

What is a consumer loan?

A consumer loan is a loan for individuals and is intended for personal consumption. As a rule, no guarantees or collateral are required to obtain a consumer loan. Consumer loans are regulated by the Consumer Credit Law, in each country individually. However, countries adhere to the same rules on the main issues of lending.

A consumer loan is different from loans such as mortgages, where collateral or collateral is required in order to receive money. Admittedly, mortgages are partly regulated by the same laws. But in everyday speech and among most lenders, consumer loans mean unsecured loans. There are several different types of consumer loans:

1. Ordinary unsecured loans intended for personal consumption.
2. Current loans, such as account loans and credit cards, where the borrower is given some credit freedom to use and the user only pays interest on the loans used.
3. Purchase loan agreements, such as those you enter into if you buy an item in instalments, are also considered consumer loans.

Another type of consumer loan is a loan at a high cost. High-value loan is a loan with an annual interest rate of more than 30% plus the applicable reference interest rate. Quick loans are common examples of loans that are both consumer and expensive.

Who can receive consumer loans?

A consumer loan is a loan intended for personal consumption. Consumer loans can be used to buy, for example, a car, refrigerator, travel, to repair an apartment or car after an accident, as well as for other personal needs. In most countries, no collateral is required to obtain a consumer loan.

With us, at AllCredits, you can compare interest rates and the cost of consumer loans from different banks and other lenders by choosing the country in which you intend to take out a loan for free. See this section How to work with our catalogue.

What is required for a consumer loan?

A consumer loan usually carries a higher interest rate than a loan secured by a mortgage. The reason the consumer loan interest rate tends to be higher is partly because lenders take on greater credit risk when there is no collateral to cover the credit loss if the borrower is unable to repay the requested amount in time. Consumer loans are also designed to pay off faster and usually have lower amounts than loans that require collateral.

When a consumer loan is taken, a consumer has the right to independently decide what the money will be spent on, and is not required to indicate the purpose of taking the loan. Some are not, for example, secured car loans or mortgages where the loan is clearly intended to purchase the collateralized product.

Thus, you can use a consumer loan for whatever you want, buy a car or other expensive goods, renovate your apartment, and pay for a vacation trip. It’s up to you to decide. Many people use consumer loans to pay off previous loans with a high interest rate, thus, they can reduce the monthly cost of borrowed loans. It does this by pooling loans.

Why to combine the loans taken previously?

On our AllCredits portal, you can combine loans and credits for free. Do you have multiple loans? Then you probably have high monthly expenses. By paying off loans and collecting them into a larger loan, you can get a lower interest rate (the larger the loan amount, the lower the interest rate), avoid several commissions (due to the pooling) and save money on it. Our aggregator will help you choose the right company to combine loans into a larger one.

Thus, you will be saving a large amount every month. Taking a loan again to save money may seem counterintuitive. But borrowing money to save money is not as strange as it seems. Several small loans with a high interest rate, combined into a single large loan for individuals help the borrower to receive a much lower interest rate and lower monthly payments.

Combining small loans into one big one means getting all the loan expenses in one and the same account. This makes it much easier to review your finances and borrowing costs.
You make payments once a month and you don’t need to remember whom and when to pay. This is especially useful if you have more than 3 small loans taken.

In addition, you avoid paying unnecessary administrative fees such as handling, billing and notification fees, as well as any hidden costs to multiple different lenders. Only commissions can be large if you have several different loans. If you have many small loans with very high interest rates, it is possible to save monthly on each payment by repaying the loan and collecting them into a larger one with a lower interest rate.

By dealing with such a pooling, you also improve your credit rating and your ability to borrow money on good terms in the future.

How credit pooling works?

You can choose several companies from our catalogue that are engaged in the consolidation of loans and apply there. In a few minutes, the first proposals will come. However, we recommend you to wait for 24 hours to collect all proposals before deciding which company to apply for a consolidated loan.

You will receive detailed loan offers and information about the interest rate different lenders can provide you. After reviewing all the answers, you can choose the company to take the most profitable loan from. Study each sentence carefully. One piece of advice is to take a close look at the effective interest rate. The loan with the lowest effective interest rate is usually the best and the cheapest. When you have made a decision, you sign the loan agreement of your choice.

Within a few days, the money will be credited to your account. Some lenders can help you to pay off old debts automatically. In the case of other lenders, you will have to do it yourself: repay loans from previous lenders. All of this is stated in the offers you receive from lenders.

What is the effective interest rate?

The effective interest rate is the total of all costs incurred on the loan. The effective interest rate includes both the regular interest rate you pay for borrowing money (nominal interest rate) and all fees such as billing, setup, and handling fees. Thus, the effective interest rate is the same as the interest rate plus commission.

The effective interest rate is intended to give a clear idea of how good a consumer loan is and how much costs will be included. It will be easier for you as a borrower to compare different loans using the effective interest rate. Unlike nominal interest rates, the effective interest rate takes into account expenses such as fixed fees and the annual interest rate on the loan.

How does the effective interest rate work?

An effective interest rate helps you as a borrower see the total cost of a loan and makes it easier to compare lenders. When calculating the effective interest rate, it includes factors such as amortization, commissions and nominal interest rate. The higher the effective interest rate is, the higher the cost of the eventual loan will be. However, the calculation of the effective interest rate does not include any external costs that are not the usual incremental costs of the loan, such as debt collection and late payment interest.

When you plan to borrow money and contact a lender, usually the contract indicates the nominal interest rate, the basic interest rate on the loan. The reason for this is that the effective interest rate is usually higher than the nominal interest rate, since the effective interest rate takes into account all costs. The effective interest rate should always be quoted in the proposal, but is usually displayed only in small print.

How to calculate the effective interest rate?

Calculating the effective interest rate is difficult, especially for those who have already forgotten their high school math lessons. It must be remembered that the effective interest rate refers to the total cost of the loan. All costs are quoted as the “regular” nominal interest rate, plus any notice, installation and handling fees. A simplified formula for calculating the effective interest rate might look like this:

Effective interest rate = nominal interest rate + commissions
(such as notification, handling and installation fees)

You should always look at the effective interest rate when comparing different loans.

All lenders are required by law to report the effective interest rate on their loans. Since the formula for calculating the effective interest rate is so complex, the easiest way to compare the loans offered is to look at the actual costs.

How to compare the interest rate?

The purpose of repaying a loan is mainly to reduce interest costs and avoid unnecessary fees. Take the opportunity to calculate the lowest interest rate when obtaining a loan. By comparing the interest rates of different lenders and comparing their offers with each other, you can lower your interest rate.

Different lenders and lenders have different priorities and target different customer groups. This means that they assess risks differently and may receive completely different interest rates for the same loan and for the same person. Therefore, you should not take a loan from the first bank. Instead, choose a lender who can provide you with the lowest interest rate and lowest cost when applying for a loan.

With AllCredits you can compare loan interest rates from many different lenders. Now you can easily compare different loans and choose the lender that gives you the lowest monthly costs and the most favourable terms in general. In short, the best and cheapest loan.

Who can get a consumer loan?

In theory, any person over 18 years of age can get a consumer loan for any amount. However, this does not mean that in any case anyone can borrow money.

In most countries, the consumer loan law states that the lender (bank) is required to conduct a credit assessment prior to granting a loan and must comply with good lending practices. Good lending practice means, among other things, that the lender cannot induce the customer to make unplanned decisions or take the loans that the he cannot repay. Therefore, in order to obtain a consumer loan, you must pass a credit check.

As a rule, this means that you need a monthly income from which you can pay all your personal expenses, and you have enough funds to repay the debt. In addition, the borrower must be clean in front of the law. Remember that age limits and refund requirements may differ not only from country to country, but from different lenders as well. The requirements for the monthly income you receive may also be tightened if the loan is of a larger amount and / or you have a very bad credit history.

Things to think about before applying for a consumer loan.

Since no collateral is required to obtain a consumer loan, in practice it is your financial situation that forms the basis for setting the interest rate. Interest is also almost always set individually for the applicant. Different lenders may also assess risks differently. In general, this means that the interest rate on a consumer loan can vary greatly depending on which lender you choose. For this reason, it is wise to compare the offers of different lenders before taking out a consumer loan.

How does a consumer credit work?

A consumer loan usually carries a higher interest rate than a loan secured by a mortgage. The reason the consumer loan interest rate tends to be higher is partly because lenders take on more credit risk when there is no collateral to cover the credit loss if the borrowers are unable to repay the money. Consumer loans are also designed to pay off faster and usually have lower amounts than loans that require collateral.

In the issue, what you have to know before taking a consumer loan?

Since no collateral is required to obtain a consumer loan, in practice it is your credit history and monthly income that form the basis for setting the interest rate. Interest is also almost always set individually for the applicant.

Different lenders may also assess risks differently. In general, this means that the interest rate on a consumer loan varies greatly depending on which lender you choose. For this reason, it is wise to compare the offers of different lenders before taking out a consumer loan.

You can save a lot of money by looking at the interest rates and additional fees that come with consumer loans from different lenders before making a decision. The larger the loan amount and the longer its term is, the more important obtaining an interest rate is.

If you take out a consumer loan in the amount of several thousand Euros and repay it over several years, even a small difference in interest rates will result in a large difference for the actual costs of the loan.