Can We Really Trust Consumer Loans?

by Dori Tery on April 8, 2013

Consumer Loans – What is the Role of Planned Borrowing?

Debt and credit aren’t necessarily bad things, but similar to everything else. Moderation and control are important. It is all too easy to end up with more debt than you can comfortably handle, and just how much debt that is depends on your financial status. In 1999, Elton John took borrowing to his limit when he had to secure a $40 million loan from a London bank to consolidate and pay off the debts he had accumulated while racking up as much as $400,000 a week in credit card bills… that is a lot of boas. He was blowing through money like a candle in the wind, accumulating over 3,000 pairs of glasses and a wardrobe unparalleled by any other rock star. He simply had the gift to spend… and, as his spending peaked, he had the need to borrow.

Sure, Elton John could spend $1 million in a day, but he could also write a song in 15 minutes that would make him another million. Most of us, thank goodness, do not have much in common with Elton John’s spending habits, but one thing we do have in common with Elton is the ability to let debt and borrowing get out of control. To achieve the truly good life, it is vital to maintain control of your finances and live within your means.

What are Consumer Loans?

You can think of consumer loans as the next step up in debt. They are stricter and more formal than credit cards and other open credit. Instead of giving up a limited, borrow-when-you-want open line of credit, they involve formal contracts detailing exactly how much you are borrowing and exactly when and how you are going to pay it back. Open credit is for making convenience purchases – tonight dinner or a new DVD show. Consumer loans are usually used for bigger purchases. With consumer loans, you can borrow more and pay it back at a slower pace than you can with open credit, but you have to lock yourself into a set repayment schedule. Because it forces you to plan your purchase and your repayment, consumer loans are sometimes called “planned borrowing”.

It would be ideal to have enough cash on to buy everything you need or want. Hey, no on likes owing someone else money. However, sometimes purchases are too big or the timing is such that you have to borrow money to finance a particular goal and pay for it later. Consumer loans allow you to do just that. However, consumer loans carry a price. While they let you consume more now, they create a financial obligation that can be a burden later. Control is the key – without it even the Rocket Man, with all his wealth, could not stay in flight.

Not all consumer loans look the same. They can range from single payment, unsecured fixed-rate loans to secured, variable-rate-instalment loans. What does all that mean? Let’s take a look at the characteristics and associated terminology of consumer loans now! Read more of  Mortgage Lenders of America Special Reviews & Ratings

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