The credit system in Norway although it follows all the global best practises varies slightly in some regards. One of the peculiarities is in the variations of loans that financial institutions offer. These different options of loans have different advantages and disadvantages.
One of the options that’s becoming increasingly popular is the credit loan option. This though similar to consumer loans on the surface is quite different.
In this article, we will discuss the basics of these loans, how they work and how one can apply for it.
Understanding Credit Loans
This loan is almost like a credit card which is a revolving line of cash advance. This financial instrument allows the borrower access to a certain spending limit in an account in an online bank over a period of up to 5 years. Additionally, interest is paid only on the amount spent and not on the total sum in the account.
So, let’s assume that you were approved for the sum of NOK500, 000 and you spent only NOK150, 000, the interest rate will be calculated only on the 150,000. This is unlike consumer loans where your interest rate is calculated on the total amount that was approved for you.
We stated earlier that this cash advance system is just like the credit card system. However, the holder of this account does not have a card with which they operate and the terms and conditions for repayment are not exactly the same.
Although people mistake these two for the same type of credit facilities, they are different. The differences between the 2 financial instruments are the disbursement style, repayment plans/options and the way the interest rates are calculated.
For consumer loans, you get the full amount that is approved all at once while in credit loans, you get funds on a need’s basis (that is the amount you need per time). So, let’s say you were approved for NOK 300,000, the whole amount will not be paid into your account, but you know that you have access to that amount.
This means that you can keep spending from that sum and repaying the amount spent as stated in your loan agreement. This is unlike consumer loans which are disbursed in full and repaid in instalments.
Furthermore, we have already explained that interest for credit loans is calculated based on the amount spent. Meanwhile for consumer loans, the interest is calculated on the total loan amount.
People who use credit cards understand this kind of financial instrument, but the only difference is that it is not accessed with a card; it works just like a bank account, but it is online. You can visit billigeforbrukslån.no/kredittlån/ more details. It’s important that you fully understand the facility you are going for.
Criteria for Eligibility
Although there may be slight variations from one lender to the other, there are basic criteria for eligibility stipulated by the Norwegian Ministry of Finance, and they include the following:
- The borrower must be of legal age which is 18 years.
- The borrower must have an annual income – the exact sum is to be determined by the lender and most often depends on the amount being applied for.
- The borrower must live in Norway and have a permanent address in the country.
- The borrower must not have any payment notice or active collection case.
Tips for Applying for Credit Loan and Getting the Cheapest Offer
Based on the criteria above, you can already see at a glance whether you are qualified to apply for this cash advance or not. However, it is not enough to be eligible for the facility; there are things that you can do to enable you get better rates and other terms and conditions on a financial instrument.
Below we share some tips that will help you get the best deals available:
Use a Loan Agent
There are many lenders in the market and to find the cheapest offer, you have to apply to as many lenders as possible. This means that you have to submit an application to every one of them which can be a stressful endeavour.
One way of making this venture easier and less stressful for you is using a loan agent. With these professionals, you can also save time and get a broader view of available loan offers. This is mainly because they have a wide network of lenders that they both work for and with.
So, all you need in this case is to fill out a single application to the agent and they spread out this application to all the lenders in their network. When your application is sent out, you can expect answers in 2 days. The offers that you receive are usually valid for up to a month which gives you ample time for comparison.
Note that in comparing offers, you should concentrate on the interest rate that is offered. The best option for you is the one that offers the lowest nominal and effective interest rates. Also check out the charges and fees that come with the offer.
Apply with Collateral
One way of getting an option with low interest rate is by applying with the equity is one’s home. This type of loan is called a framework or flexible loan. In this instance, the applicant can be approved for up to 60% of the value of their home in a revolving line of credit. The reason for the lower interest rate is because the loan is considered low risk because of the security.
Bear in mind that approval for this type of credit is based on your loan- to- value ratio which has to be less than 60%. You can read this article for more details on loan- to- value ratio.
Apply with a Co-Borrower
One sure way of getting approved for substantial sums of money and lower interest rates is by applying with a co-borrower. A co-borrower is someone with whom you share the responsibility of repaying a loan. Banks/lenders are amenable to approving loans for applications with 2 borrowers.
This is because a loan undersigned by 2 incomes is less likely to be defaulted upon than one with a single borrower. This option is best for people whose scores are low or who have short credit history. The credit scores of both applicants are treated as one unit which increases the total scores.
Benefits of Credit Loans
We have established that credit loans are not the same as consumer loans; but why would or should one go for it instead of the latter? Find below the benefits:
Flexible Repayment
When you take out a consumer loan, you already know the amount that you have to pay every month until the end of the loan term. With a credit loan however, the repayment is like that of plastic money as credit cards are also called.
Every month end, you get an invoice for the amount you have spent from the credit account; you can choose to pay the minimum amount or pay the full sum. This flexibility works well for people who do not have so much monthly cash flow. The downside of this however is that the smaller the amounts you pay, the costlier the total cost of the loan will be.
No Expiry Date
In comparison with the consumer option, this line of credit has no end date. For a consumer loan, there is a termination date for the total repayment of the debt but with a credit loan, the loan is revolving and does not expire unless you terminate the loan agreement.
Cheaper than Credit Cards
The conditions that this loan comes with are almost the same as unsecured consumer loans. This means that you can get as low as 5 to 6% effective interest rates. However, the cheapest plastic money rate is 20%.
Interest rates on this financial instrument are determined by the amount the borrower applies for and the credit score of the borrower. Larger loan sums attract lower interest rates while smaller loan sums attract higher interest rate. In the same vein, a high credit score gives a borrower greater leverage to negotiate for lower interest rate while a low credit score makes the borrower susceptible to higher interest rates.
Conclusion
Once it comes to a financial decision, we always advise that people take out time to do their due diligence so that they do not fall into debt traps. We have shared information that will help in the process of this due diligence. However, you can go further in the process by speaking to your financial advisor.
