A consumer loan is a lump sum that you lend unsecured. That is, you do not need to provide collateral in a guarantor or real estate, as you usually have to when you take out a mortgage, for example. A consumer loan also gives you a free right of disposal, which means the bank doesn’t care what you use the loan amount for.
The interest rate on the consumer loan will be higher than the mortgage rate, but at the same time significantly lower than the interest rate you get on a credit card.
You can borrow up to USD 500,000 and get a long-term repayment plan. The repayment is made monthly, with fixed installment amounts containing both installments, fees and interest.
You pay the same amount each month, which makes the repayment tidy and predictable and gives you the assurance that the loan will be paid off within the schedule.
How does a mortgage loan work?
A mortgage loan is a common term for flexible loans, where you can borrow up to a certain limit or limit agreed in advance.
Borrowing loans are also called flexible loans or account loans, and have in common that the loan does not have a fixed repayment plan. A mortgage loan is therefore only recommended if you have good control over your own finances.
Flexible loan = great freedom
A mortgage loan or flexible loan has many similarities to a consumer loan, but the loan has a more flexible repayment scheme. This means that instead of paying a fixed monthly installment, which includes both installments, fees and interest, you decide how much you want to pay down the loan.
You can pay a lot in one period and little in another and have several installment-free months. A flexible loan also gives you the option of repaying all or part of the loan amount once you have repaid the amount.
As the name implies, a flexible loan, or a frame loan, is a type of loan that offers great flexibility but can also present challenges if you are unable to structure the repayment yourself.
For some, it is easy to be tempted to borrow money within the framework repeatedly, which can increase the chance of overspending. And if you choose to have many installment-free months in the year, the consequence will be high interest expenses.
Credit: almost like a credit card
Account credit is also a type of mortgage loan. Once you have been granted credit, you have the option to withdraw your account with the amount you have been granted.
This means that you always have a certain amount available in your account, in addition to your own money. In the same way as a flexible loan, interest is calculated on the amount you have used for the credit. When you get paid, or otherwise get into your account, your account credit is replenished and interest rates stop running.
Account credit, like a flexible loan, provides a high degree of flexibility, but the risk of overconsumption is high when the loan is not paid out as a lump sum, such as a consumer loan. The amount you can get in credit is usually lower than what you can take out in consumer loans, and is often limited by your fixed monthly income.
Mortgages with collateral in housing
A mortgage loan can also be used as a mortgage, in which case you are required to provide collateral in an asset, usually in the home you are about to buy. This means that the bank pledges your home to be able to lend you money.
The amount, or the limit on your loan, is limited to a certain percentage of the home value, usually 60 – 70 percent. As with a regular mortgage loan, you do not have to use the entire loan amount, and you only pay interest on the money you have spent.
Every loan has its advantages and disadvantages, so it is wise to familiarize yourself well with the differences between them. Which loan you should choose depends on what life situation you are in, what you need money for and how neat and structured you are. Both flexible loan, account credit and frame loan give you great flexibility, but at the same time it means freedom under responsibility.
For many who need money for a specific purpose, a consumer loan with a fixed framework and a clear repayment plan can provide predictability and prevent over-consumption.