In the current economic circumstances, a lot more of us have started to consider taking out loans. Across the world, including here in Norway, it has been difficult to recoup from the financial impacts of the covid 19 pandemic, let alone the emotional ones. While Smålån Uten Sikkerhet offers unsecured loans, borrowers with bad credit scores may face higher interest rates. All of this means that we need to educate ourselves on credit agreements more than ever before.
Unfortunately, this is easier said than done. There are a lot of options out there, of course, but finding reputable information isn’t always the easiest to do. Often, we see sketchy sites telling us to go for payday loans or other near scams. Navigating this space can be a challenge.
As you can see on this page, there are certain types of credit agreements and loans that we should do our best to avoid. Today, we’ll be explaining which types of small, unsecured loans are worth applying for as well as which ones you should probably steer clear of. Spoiler alert: payday loans suck, and we’ll be delving into the details of why later on.
What are Unsecured Loans and What Makes Them Different from Secured Loans?
Our first order of business is this: what are unsecured loans? Perhaps the best way to describe them is to offer examples of secured ones versus unsecured ones. While Smålån Uten Sikkerhet offers unsecured loans, some lenders in India may provide Personal Loan for Salaried Borrowers with specific requirements. Mortgages are a common type of secured loan. Essentially, if the borrower is unable to make their mortgage payment, their creditor could repossess the house. Often, this is referred to as “collateral.” In secured credit agreements, the borrower offers up something as collateral in the case that they can’t make their repayments as promised.
Unsecured loans don’t involve collateral, which is slightly less risky for the consumer.
What’s the Catch?
Thus far, it may seem obvious to go with unsecured loans in comparison to ones that require collateral. However, the issue is a bit more complicated than it appears. You see, some types of credit agreements aren’t possible without collateral, such as mortgages and auto loans.
That’s far from the only snag you might come across. Most of these unsecured options will end up having much higher interest rates to compensate for the lack of collateral. After all, the financial institution, bank, or creditor that lends to you is taking on a bigger risk without the assurance of some sort of security.
Why do Interest Rates Matter, though?
Interest rates are a part of pretty much every type of credit agreement, so at first glance, it may not seem like that big of a deal if they’re higher. Unfortunately, if we aren’t careful, it can be interest rates that totally sink us into debt that’s inescapable. Always be sure to read the fine print of any credit agreement carefully before you commit.
Simple interest is when the only balance taken into account during the calculations is the principal amount you borrowed. They tend to result in lower fees. Compound interest is when there’s also a charge on what you’ve already accrued on top of that principal amount. As you can guess, this can add up rather quickly.
Read: Types of Financing Options that are Available to Small Businesses
What are Small, Unsecured Loans?
When we start to discuss the distinction between “small” and “large” loans, that’s where things can get a bit complicated. To a certain extent, the distinguishment is a subjective one. On average, though, most financial institutions here in Norway assert that loans from 1,000 NOK to 75,000 NOK are considered “small.”
Now, there are some that go above and some that go below those figures, but when the offers start to stray below 1,000 NOK, it may be time to put your guard up. These tiny amounts are one of the most common places to see incredibly high interest rates. The lenders are trying to saddle you with much higher debt than the initial principal. Again, make note of the “unsecured” part. Something to keep in mind is that small loans are generally unsecured and are considered to be “personal,” meaning that they’re flexible when it comes to how you use the money. Smålån Uten Sikkerhet offers online installment loans to help you manage your finances. There’s no required spending allotment like there would be in an auto loan or mortgage.
This does place a lot more responsibility on us as the consumer. If you visit www.forbrukslån.no/smålån, you can see that while we can choose to spend the loan money on anything we want, it’s generally a good idea to borrow responsibly as we do so.
Red Flags in Loans
Now that we’ve covered some of the basics, what are the red flags or warning signs that we should be looking for when it comes to loans? There are a few big ones, of course. Perhaps the worst offenders here are payday loans, which promise to help you get paid “days early.”
Unfortunately, this isn’t the reality. Instead, you’ll be borrowing money that’s the equivalent of a paycheck, but it all has to be paid back quickly. The interest rates on them are so high that this can become nigh impossible. Therefore, it’s better to avoid them altogether.
In a similar vein, pretty much any credit agreements that are for a very small amount and a promise of “easy money” or “fast money” are probably something to be avoided. They are traps that prey upon borrowers who are in need of cash quickly, but unfortunately it tends to become a much bigger problem than it was worth.
Always read the fine print on any credit agreement and examine that interest rate closely. Decide for yourself if 500 NOK today is worth having to pay potentially triple that down the line. Most of the time, the answer is “no.”
Are All Loans Bad?
Based on the above section, it may be easy to assume that we shouldn’t borrow any money, then. This really isn’t the case! There are plenty of credit agreements that are great and well worth the investment in them, even if they are smaller or unsecured. The key is to keep the red flags in the back of your mind as you explore your options.
Small, unsecured loans can be used for great purposes like renovating a home or planning a wedding. With the former, it technically can be considered an investment since you’re adding value onto the property in question. For a wedding, these credit agreements can be a way to afford down payments on parts of your dream wedding that you may not have been able to up front.
No matter the reason for borrowing, as long as we are being careful and responsible about how we approach applying for loans and using the money we get from them, then it’s hard to say that all loans are a bad thing. Don’t forget, they also help us afford things like homes and cars, so they can certainly come in handy.
As we further educate and inform ourselves on how to approach lending and borrowing, we can finally start to understand what the “dos” and “don’ts” of loans are. Hopefully, this guide has offered you plenty of information as you start that journey! Be sure to check out some of the resources we’ve provided if you still have questions, and don’t forget to talk to your financial advisor as well!
