ways of financing dreams and ideas

ways of financing dreams and ideas

People with flying ideas change the world – almost all companies with a global reach started by holding on to an idea with ten nails. Unfortunately, we have to admit that not all business ideas and plans become reality, as there is no self-financing to realize them. Although banks help young entrepreneurs with strong business plans to make their ideas come true, there may not be a positive response to the sent application.

It’s the same story with consumer loans– if the bank does not give a positive response to the loan application, consumers must look towards alternative credit issuers. Since there is a good crowd of loan issuers, you have to be careful when choosing loan products and take loan offers from different institutions. In this way, you can ensure the most favorable loan conditions for yourself, but you still have to take into account a higher interest rate than the one offered by the bank.

Consumer loans help out of unexpected trouble

Accumulating cash reserves and putting a small amount into a savings account each month for a bigger goal are great ways to stay afloat in the event of unexpected expenses, and setting up a savings account is the first recommendation of financial advisors to consumers seeking financial advice. However, if the unavoidable expenditure is greater than the savings collected so far in the piggy bank, you have to think about looking for additional financing, and this is where different types of consumer loans come to the aid of consumers.

A consumer loan is an unsecured small loan for which there is no need to go through a special application process: there is no need to mortgage existing assets to cover the loan. There are several different types of consumer loans, but the most frequently chosen among them is a quick loan or consumer credit (or credit card). It may come as a surprise to you, but the installment payment system often chosen when making larger purchases is actually a consumer loan.

When choosing a consumer loan, keep common sense and compare different loan products

Consumer loans have their pros and cons compared to other loan types: although it is not necessary to pledge property to apply for a loan, the amounts of unsecured consumer loans remain low, and the loan interest rate is several percentage points higher compared to a secured loan. This makes the total cost of credit of an unsecured consumer loan higher, but in the absence of alternative financing methods, this type of loan helps to overcome the financing problem.

A consumer seriously considering applying for a consumer loan should not make a financial commitment blindly and without thinking: before sending any application, preliminary work should be done, different types of loans and loan providers should be compared and see which credit institution or credit issuer allows borrowing under the most favorable conditions. Since comparing loans and loan products is a piece of work, consumers increasingly use loan comparison portals such as Loan Immediatelywith which you can get personalized loan offers after entering the basic information either a few days or even a few hours later. Such portals are used by both Estonian and, for example, Finnish consumers.

What are the terms of consumer loans in other parts of the world?

We have already reviewed the most frequently taken out consumer loans in Estonia, but Estonia is far from the only country where personal expenses can be financed with so-called “foreign money”. Institutions issuing consumer loans can be found in every corner of the world, and consumers living in different countries can apply for different types of financing. We briefly introduce the terms of popular consumer loans in seven different countries.

Estonia: Interest rates for consumer loans issued in Estonia are among the highest in the European Union – the average consumer loan interest rate is ~14%.

Great Britain: the average consumer loan interest rate is below 10%.

Holland: Consumer loan interest rates are around 4-6%.

Germany: German loan issuers keep interest rates lower compared to Estonia (~8%).

United States of America: credit card-loving Americans need to pay an average of a fifth or ~21% in addition to the original amount when taking out loans or using credit cards.

New Zealand: When applying for and repaying a loan, a consumer looking for extra money must take into account the same percentage rate as in Estonia (approx. 14%)

South Africa: The consumer loan interest rate remains around ~11%, but of course there are also fluctuations.

As you can see, buying a new car, repair work or just a large purchase does not have to remain an unattainable dream somewhere, but depending on the country, a lower or higher interest rate must be taken into account when repaying the loan taken.

To finance the business, you can get a loan from both a bank and a credit issuer

Business loans are broadly divided into two groups: secured and unsecured business loans. The first of these options has lower additional costs for the entrepreneur, i.e. a lower interest rate, but businessmen who are just starting their business tend to choose an unsecured business loan. A loan with collateral is a safer option for the lender, but if there is no collateral, a more expensive loan must inevitably be chosen in the long run. In this way, there is no need to worry about losing real assets if the company’s financial goals are met later than planned.

Financial experts from loan comparison portals recommend that start-ups pay close attention to the flexibility of the loan repayment schedule and choose a loan product in order to mitigate risks, the issuer of which does not require a predatory surcharge for later repayment of the loan payment.

If the interest rates for consumer loans remain at 14% on average in Estonia, the average interest rate for business loans is half that – 6.93% as of July 2024.

Terms of business loans in other countries

As with consumer loans, we also review business loan interest rates in other countries to get a better idea of ​​business loan conditions on a global level.

Estonia: the average interest rate for business loans is ~7%, the most popular ways of financing a business are bank loans and loan products from credit issuers.
Great Britain: interest rates for business loans range from 6 to 15%, and banks, credit issuers and, to a lesser extent, crowdfunding are also used to obtain additional funds for the company.
Holland: Countries with one of the lowest average business loan interest rates in the European Union: an average of 4.5%. Companies take loans directly from banks, and applying for business loans from credit issuers is not as common as in Estonia.
Germany: interest rates on business loans remain at the same level as in Finland – 5.2% on average. German entrepreneurs prefer to get financing directly from the bank, but German entrepreneurs also use loan comparison portals to find the best offers.
United States of America: the interest rate for business loans issued by banks is on average 8%, but varies according to the issuer of the loan and the state in which it is located. In the US, there are options for financing the company’s activities, such as mud – banks, alternative credit issuers and also crowdfunding.
New Zealand: like consumer loans, loans for companies are also available at relatively crisp 10%+ interest rates.
South Africa: as the interest rates of local lenders fluctuate widely, companies are primarily looking towards alternative forms of financing.

It is wise to use comparison portals to choose a loan

Since there are more than a dozen institutions that issue consumer loans and business loans in Estonia, combing through all the offers and comparing them takes hours. To save the time and energy of the consumer and the entrepreneur, it is possible to use comparison portals, where it is necessary to enter the loan amount, the expected length of the loan repayment period and some personal data.

The team of the comparison portal does the sorting and selection of offers for the customer and forwards loan offers with the best conditions, from which choosing a suitable product is a piece of cake. Viewing the offers does not entail the obligation to conclude a loan agreement, and the use of the service does not entail any costs for the customer.

Source: www.aripaev.ee