The demand for consumer loans in many parts of the world keeps rising. Norway is a prime example as the demand for these kinds of credit lines reached an all-time high in the third quarter of the year 2023. To provide a better perspective, we are talking about close to 3 trillion Norwegian Kroner in debt.
There are several reasons for the continuously rising demand. The multi-faceted nature of these credit lines is one such. The flexible usage it offers is certainly something that makes it the option of choice.
However, some borrowers are having it hard to repay their loans. This has led to chronic debt problems for some of them. While there are several possible reasons for this, opting for high-interest consumer loans is high on the list of reasons.
People therefore need to prioritize getting credit lines at significantly reduced cost. This starts with understanding the benefits of doing so. You are guaranteed to find out some of the several benefits provided you continue reading this article.
Benefits Of Low-Interest Consumer Loans For Borrowers
A service is rendered when loans are granted to consumers. The two parties (the lender and the borrower) benefit when this happens. However, it is a question of who benefits the most. The lender benefits the most when credit lines are granted at high-interest rates. This is because the additional cost repaid will be massive.
On the flip side, the borrower benefits more when credit lines are granted at low interest rates. This is because the additional cost repaid in addition to the borrowed principal will be little. In light of this, loan applicants should be intentional about getting low-interest loans.
The problem in a lot of cases is that applicants are too overwhelmed with the need to get the credit lines. This is to the point of paying very little or no attention to its cost. To further buttress the need to opt for low-interest loans, here are some of the benefits for borrowers:
Reduced Borrowing Cost
This is the most notable advantage as stressed earlier. People who end up with low-interest credit lines get to pay a lot less than those who end up with high-interest credit lines. To provide a better perspective, here is a scenario that helps to drive home this point.
Imagine that two people take out a loan of 300,000 Norwegian Kroner each to be repaid in 3 years. These people would not only pay the principal amount borrowed because it is a service rendered as mentioned earlier on. Instead, they would repay more than the 300,000 Norwegian kroner borrowed, as this is how the lender benefits from the deal.
Imagine the first person got the loan at an interest rate of 5 percent, while the second person got it at an interest rate of 14 percent. Besides other fees that may apply, the implication is that the first person pays a total amount of 345,000 Norwegian Kroner. The second person (who got the loan at an interest rate of 14 percent) will pay a total amount of 426,000 Norwegian Kroner.
While the first person who gets the loan at an interest rate of 5 percent pays an extra amount of 45,000, the second person who gets the loan at an interest rate of 14 percent pays an extra amount of 126,000 Norwegian Kroner.
In other words, the second person pays 81,000 Norwegian Kroner more than the first person. This is even though both borrowers take out the same amount and repay within the same time frame.
The huge difference between the interest rates is the simple reason one borrower is better favored by the arrangement, while the other is not. For this reason, loan applicants need to work towards getting low-interest credit lines and not just credit lines with any kind of interest rate arrangement.
Better Chance Of Improving Your Credit Score
High-interest loans can be indirectly detrimental to people’s credit scores and history. The difficulties encountered in servicing such debts are usually the reason for this.
For the record, a lot of debt collection and payment note issues arise from difficulties experienced in repaying high-interest loans. These issues have a severe negative impact on credit ratings and history. As a result, people with such issues are exposed to the harsh realities of having a damaged credit score and history. For the record, some of the complications that can arise include:
- Difficulties accessing emergency credit lines
- Emotional strain
- Limited access to certain opportunities – such as qualifying for highly subsidized mortgage programs
- Difficulty building wealth
- Strained relationships with people who are frequently contacted for financial assistance
- Negative effects on job prospects – In some cases
- Expensive insurance premiums – Insurance companies consider insuring such people a greater risk
- Very limited access to credit lines
- Difficulty securing low-interest loans and improved loan terms and conditions
- Difficulty renting properties
Frankly, the list goes on. You can read this article for more information on the damages that a bad credit score and history can cause. For this reason, it is better to plan to avoid the several financial troubles that high-interest loans can cause, including damage to one’s credit score.
The possibility of getting highly affordable loans favors borrowers mostly. This reason is that it is a lot easier to service highly affordable credit lines. This ensures that the financial stability of borrowers is not threatened by their inability to service their debt. The fact that monthly payments are usually a lot less than they would be with high-interest loans is the reason for this.
Debt Consolidation & Refinancing
Consumer loans are multifaceted. In other words, they can serve several purposes including:
- Home Improvement
- Financial Leisure Activities
- Appliances/Electronics Purchase
- Moving Expenses
- Home Furnishings
- Wedding Financing
- Medical Expenses
- Auto Purchase
- Debt Consolidation
These are only a few as there are several others. The multi-faceted feature of these credit lines is a large part of why they are very commonly utilized by people.
But while they can be used for several purposes, a sizable portion of consumer loans are used for debt consolidation purposes. This is not surprising as the debt consolidation and refinancing prospects of some consumer loans come in handy for almost 70 percent of borrowers.
However, it is of utmost importance that such refinance consumer loans are secured at the lowest interest rate possible. It is only then that the true benefit of debt consolidation and refinancing can be achieved.
For this reason, the numbers have to add up. Furthermore, it is important to calculate the cost of such loans using the effective interest rate. It would be a mistake to calculate using the nominal interest rate. The reason is that the effective interest rate is what represents the true cost of securing a credit line.
It may also be a good idea to engage finance experts in calculating the true cost if you cannot do this yourself. For the record, this is one of the benefits of engaging loan agents when searching for low-interest consumer loans. Besides presenting you with several options, engaging them increases your chances of making the right choice.
Peace Of Mind
Servicing a debt is risky. However, it is riskier when it is a high-interest debt. This is because you have to pay a lot more in installments. Furthermore, the consequences for late or failed payments are usually harsh.
All of these and more can rob borrowers of their peace of mind. On the other hand, people who take out low-interest loans are usually less unperturbed than those who end up with high-interest loans. The fact that they have less amounts to pay and more borrower-friendly terms is the reason for this.
It has been established several times here that high-interest loans are more expensive than low-interest loans. As a result, the latter provides borrowers with more funds to do several things, including paying for expenditures, saving, and investing.
Those who end up with high-interest credit lines do not enjoy the same privilege as a lot of their earnings go to serving their debt. The example above is a prime example of how this plays out.
While one borrower ends up paying 345,000 Norwegian kroner for a loan of 300,000 Norwegian kroner, another ends up paying 426,000 Norwegian kroner for a loan of the same amount, which is paid back within the same timeframe.
The difference of 81,000 Norwegian kroner means that the person who secured the low-interest loan gets to use this amount for other things. This explains why billig lån med lav rente, which is the Norwegian translation for cheap loans with low interest rates, should be your focus when you need credit lines. Just so you understand how significant this can be, you can watch well over 500 movies with 81,000 Norwegian kroner.
Access To Loans With Larger Amounts
For starters, people without a credit history find it difficult to secure loans exceeding certain amounts. This is because a loan applicant’s credit experience can help creditors understand how creditworthy they are.
In the same vein, people with bad credit scores and history find it hard to secure more loans. These are especially loans of large amounts.
Furthermore, a high-interest rate loan makes your debt-to-income ratio unfavorable. As a result, creditors may be unwilling to offer you more and larger loans.
Being able to secure a credit line at an affordable cost offers several benefits. Some of the benefits have been discussed above. To this end, you should be as concerned about getting low-interest loans as you are about securing a loan. This ensures that you avoid the several pitfalls of high-interest loans.