What is a consumer loan and how to get rid of it.

Consumer loans are essentially a loan where no extra security is required in assets such as a car, boat or house. This means that it is an unsecured loan. The classic consumer loan is an unsecured loan with aroundt 15% interest rate that must be repaid over 5 years or shorter. You can often borrow up to 600 000,- on such a loan.

In order to grant you a consumer loan, the bank must carry out a credit check on you to assess your ability to pay back repay the loan. Because of this, it is very rare that you can get a consumer loan.loan if you have payment remarks or a low credit score for other reasons.

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There are several types of consumer loans. Such as SMS loans and in-store instalment loans.

Consumer loans as partial payment

Another form of consumer loan is a partial or deferred payment of an item. This you can often choose if you are buying something expensive like a new washing machine or a sofa. You will then be given an offer to defer payment for a period of time, such as 3 or 12 months, for a fee. It varies greatly what theythis fee is, but often you will have to pay around 20% interest on the purchase. This is also an unsecured loan.n, where the provider will need to run a credit check on you, to make sure you don't have a bad payment history.  

SMS loans

SMS loans, or small loans, are a form of credit where you can risk paying up to 200% interest. This is most common from providers who promise money quickly into your account where you can borrow between 1000-30 000,-. This is often as a framework, a bit like a credit card, where you decide how much you want to use. Once you choose to use the facility, the 200% interest rate starts to run.  

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If you are taking out unsecured debt, it is important to first consider whether you can afford it and how you will repay it.

Make a good plan 

If you have decided to take out a consumer loan, we recommend that you first make sure that you can afford the extra cost per month. As consumer loans have a short repayment period, the monthly payments are often high. Also, make a good plan for how you will repay the loan. Because of the high interest rates on consumer loans, it's important to pay them off as soon as you can. Perhaps you can adjust your spending downwards for a period of time to make extra repayments? If you are unable to make extra repayments on your loan, you should at least follow your monthly repayment plan. 

There are options if something unforeseen happens

Most people who borrow money think that they will be able to pay it back. However, unforeseen events such as a major expense, a drop in income, redundancy, long-term illness or a break-up can seriously damage your ability to pay. It's important to know what your options are before your bills go to debt collection. Refinancing to reduce your monthly expenses may be a solution. 

There are essentially three ways you can refinance consumer loans: 

  1. You can apply for a new but cheaper consumer loan.
  2. You can refinance your consumer loan into your mortgage, provided that you have sufficient collateral and that you have no debt collection or payment remarks. In this case, the consumer loan is baked into the mortgage, which gives you a longer term, lower interest rate and therefore lower monthly costs.  
  3. If you have debt collection cases and/or payment remarks, you can refinance your consumer loan into a new mortgage with a specialist bank. This is a bank that specialises in providing loans to people who have financial challenges such as debt collection or payment remarks. This is also provided that you have sufficient collateral in your home, but specialist banks are often more flexible than "ordinary" banks. Then you also get the consumer loan baked into a mortgage, but at a slightly higher interest rate than a "regular" mortgage. Overall, in most cases, this will also give you lower monthly costs.  

Which path is right for you depends on how much you have room to pay per month and whether you have already run into payment problems. In any case, we would recommend that you check with your 'regular' bank to see if they can help you with refinancing and advice before you approach a specialist bank like us. 

Have you been unlucky and got a payment default?

Everything you need to know about refinancing.

Financial advice

This article is part of the Financial advice category, a collection of articles that deal with topics related to personal finances, such as family, children, lifestyle, work, home and housing, car and motor, cottage and leisure, life changes, savings and investment. Read more about Financial advice

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