Every once in a while, people find themselves in a financial bind and need some help to get through. There are different ways of getting out of a financial bind; you can either solicit for funds from family, friends or loved ones, or apply for grants or take out a loan.
So many people have found themselves in unpleasant financial states because of loans and that is why they are wary of loans. Credit facilities in themselves are not bad as they can be life savers (even literally); however, it becomes an albatross around one’s neck if due diligence is not done by the borrower before proceeding.
One of the things that make loans problematic is high interest rate and that is why this article will address the issue. In this article, we will explore all about consumer loans and how to get the one(s) with low interest rates.
What is a Consumer Loan?
Forbrukslån is Norwegian for consumer loan and it is a type of credit facility that is extended to borrowers for different expenses. These expenses include vacation, home improvement/renovation, buying a car, medical bills and others. Oftentimes, these loans are not secured which means the borrower does not need to present collateral.
These loans can be provided by banks or any other financial institution or even online lenders. The terms and conditions though similar in general, may vary depending on the lender and sometimes the borrower.
Interest rates for unsecured loans are usually higher than that of secured loans. An example of secured loan is a Mortgage; and it is considered a secured credit because the home is used as collateral. This means that in the event that the borrower defaults on payment, the house is repossessed and used to offset the debt.
For unsecured loans however, the borrower does not present any collateral which means that the lender does not have any security in the event that the borrower defaults on repayment. This makes the transaction riskier for the lender and that therefore is why unsecured loans have higher interest rates than secured ones.
Many banks are willing to give borrowers low interest rates in order to gain new customers. However, every borrower does not stand the same chance of getting low rates. Before you apply for low interest consumer loan (or søke forbrukslån lav rente in Norwegian), you need do your due diligence. This will help you to present a profile that will convince the bank/lender to approve your application.
In order to help you out with your due diligence, we will share more information on eligibility, borrowing limits and also tips on how to apply; keep reading…
Requirements for Eligibility for Consumer Loans
There are criteria that qualify you for applying for and getting approved for consumer loans in Norway. As a general rule, you have to present proof that you have a stable income and also your credit score must be good.
Just like every type of credit facility, you have to fill out a form to apply and also provide whatever document is requested by the prospective lender. Although the requirement for eligibility varies depending on the lender, the following are some of the requirements you will find across board:-
- Must be of legal age – 21 or above
- Must be resident in the country
- Must have lived in the country for at least 1 tax year
- Must not have any collection or payment remark on their financial record
- Yearly income must be over NOK 220,000
Bear in mind that some lenders might require all of the above and more while some others may waive one or two requirements. Additionally, the borrower’s creditworthiness also affects the waivers that they qualify for.
Borrowing Limit for Consumer Loans in Norway
The borrowing limit as well varies from one lender to the other and also on the credit score of the borrower. However, on a general note, applicants can be approved for sums between NOK 10,000 and NOK 600,000 and repayment terms ranging from 3 months to 5 years or more.
Some lenders can also approve lower sums or higher with varying repayment terms depending on the borrower. It is therefore very important to bear in mind that the greatest bargaining chip for lower interest rates is your creditworthiness.
Tips for Getting Consumer Loans with Low Interest Rates
There are many banks that offer low interest consumer credits. Presently, the best interest rate you can get without collateral is 5.00% but the probability of getting this rate is high for only a few percentage of borrowers; chances are even lower for people who apply for small loans.
You can visit this site: https://tradingeconomics.com/ for more on interest rates in Norway.
The following are some tips to help you get a low interest rate consumer loan:-
Check out as Many Lenders as Possible
The financial market is replete with banks that are competing to provide loans as an incentive to get new customers and retain old ones; therefore, you need to take advantage of the competition to get the best rates possible.
There are lenders that their interest rates are always cheaper than others; therefore you must be patient enough to check out as many offers as possible. Carry out comparison shopping to help you compare offers and get the best one for you.
Bear in mind that the effective interest rate for any loan includes the cost of every fee accruing to the loan. This means that it is the effective interest that you will use in comparing offers and not just the nominal rate. You may get an offer with low nominal interest rate but high bank charges and other fees; this will translate into an expensive credit facility at the end of the day.
You can apply to the many options individually or apply through a financial agent. It is actually recommended that you use the service of a financial agent because it is more efficient and hassle- free. With these agents, you fill only one application form and they do the work of using that information to apply to as many lenders as possible.
These agents are already affiliated to banks and they receive commissions from these banks so you do not have to pay any service charge to them. Furthermore, when the offers come in, you make the choice and determine which lender to work with.
Ensure that your Credit Score is Good Enough
Remember that your credit score is a major determinant of the type of terms and conditions that you can negotiate for and expect approval. It is therefore necessary to ensure that your credit score is what it should be before applying for loans. If is not, you can apply the following tips to improve it:-
- If you do not have any credit history at all, the first step will be to open accounts that will be reported to credit bureaus. You can also take out credit builder loans or get secured credit cards. This helps in laying a good foundation for your creditworthiness.
- Pay off your revolving credits such as credit cards
- Ensure that you do not miss any payment by more than 29 days.
- Clear old debts
- Limit how often you apply for loans
You can click here for more information on how to improve your credit score.
Apply With a Co-signor
Lenders consider low interest rates for people who apply with a co-signor. This is because the risk of the loan will be borne by 2 persons instead of one. A co-signor can be your spouse or partner, business partner or parents.
Applications made by co-borrowers have a higher approval rate especially if one of the borrowers has an excellent credit score. However, even in cases where both borrowers’ credit score are average, a combination of both scores stand a better chance than an individual with an average credit score.
Before you agree to co-sign any loan, bear in mind that you will be responsible for the loan if your co-borrower defaults or absconds. So ensure that the person you are co-signing off on a loan is someone that you can trust. Also note that both of you must meet all the eligibility requirements.
Ensure You Have Just One Consumer Loan Per Time
Smaller loan amounts attract higher interest rates so it is not financially wise to have multiple small loans. So if you need a low interest consumer loan and you already have an outstanding credit, it might be best to take out a refi-loan.
So for example, you have an outstanding loan of NOK 60,000 and you need NOK40, 000, it is advised that you take out a consumer loan of NOK 100,000. If the loan gets approved, you pay the outstanding NOK60, 000 and use the NOK 40,000 for the purpose you took out the loan. With this, you will only have one loan to repay, instead of taking out NOK 40,000 and having an outstanding NOK 60,000. More so, your interest rate will be on only one loan and it will be lower.
Stay Updated
Some borrowers do not know that they can renegotiate existing loans. But the truth is that with improved credit score, you can always renegotiate for better rates on your loan. Imagine that you took out a loan some years back and you have consistently kept up with your financial obligations; your credit score will improve.
If in addition to consistently paying off your debt, you maintain a low debt profile, you may be in a better position to access lower rates. That is the reason why you need to stay updated not only with your financial records but with your lenders also in case they roll out new offerings for their loyal customers.
Conclusion
Getting low interest consumer loan is not rocket science; even if it were, it can be studied. This article has provided a well detailed guide that you can trust to help you navigate the world of consumer loans and get the best deal. So don’t sleep on it.