As we mentioned in previous article, Consumer loans refers to people borrow money to make a wide range of secured and unsecure loans to consumers for consumable items from lending institution. Consumer loan does not include mortgage loans, that is typically used only for home purchases. In this article, we will discuss types of consumer loans. In this article, we will discuss other requirements for borrowing.



In order for the borrower to get the consumer loan, the lenders may require the following

1. Life Insurance

a) Lenders often require that their consumer loans be life-insured. They do this by having a group life insurance policy that covers the lives of their borrowers against the risk of someone dying before her/his debts have been repaid. This insurance on the life of the borrower is called credit life insurance.

b) When an insured borrower dies, the insurance company will pay the lender the outstanding balance due on the debt. otherwise, If the borrower dies without having credit life insurance, then that person's estate is responsible for repaying the loan.

2. Disability Insurance

a) Most lenders do not require borrower to have disability insurance, but credit unions often do.

b) For an additional fee, disability insurance covers the borrower for the risk of being unable to make monthly payments because of personal disability.

3. Interest Charges

a) The cost of borrowing depends upon the lender's cost of money, the assessment of the risk of the loan not being repaid, and the services offered.

b) Deposit-taking institutions, with a ready supply of funds to lend, can charge lower rates than small loan companies that have to borrow funds to lend.

In order to cover the costs of the banks, trust companies, and credit unions, the government allow a 1 to 3% spread between the rate paid to depositors and the rate they charge borrowers.

All banks, trust companies, and credit unions establish the level of risk they will accept and refuse loans to those who do not qualify.

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