In life, there might be only a couple of fears bigger than fears regarding our financial situation. In the cases of considerable uncertainty or unexpected financial needs, courtesy loans can come quite handy.
If you wonder what Courtesy Loans are and how you could use them, keep reading this article, and you’ll learn everything, there is about.
Understanding loans in general
The term Courtesy Loans might sound familiar to you – or at least the second part of it. We prepared a Loans 101 dictionary for you to get acquainted with all the financial terms you need to understand.
A loan is a financial service in which another party borrows a sum of money in exchange for future repayment. Usually, the lender adds interest rate or finance charges to the value of the loan amount, which the borrower should repay in the agreed time frame. Simply, a loan is a form of debt incurred by an individual or other entity to be compensated following a particular set of terms.
The lender is the entity that lends the sum of money to the borrower. Lenders are usually financial institutions, giant multinational corporations, or the Government. An individual can also be a lander, but we focus on teaching you about loans issued by official institutions in this blog.
The borrower is the entity that borrows the sum of money from the lender. In return, borrowers agree to make the repayment per some terms: finance charges, repayment date, interest rate, and any other additional conditions.
Loan terms refer to the set of rules established by the lender while advancing the loan. These terms are usually partially fixed in advance, and the rest of them depend on the borrower’s financial situation: credit score, credit history, loan amount, and similar.
There are different forms of loans. Loans can be:
- Secured loans
- Unsecured loans
- Commercial loans
- Personal loans.
Secured loans are those secured by the collateral. This means that if a borrower cannot make the repayment, collateral will be taken by the lender. An example of this type of loan is a mortgage or a car loan.
On the other hand, unsecured loans are those that are not backed up by collateral. Credit cards and signature loans are excellent examples of unsecured loans. Unsecured loans usually have a higher interest rate and fewer loan options, as the loan company (or any other loan entity) faces a much higher risk.
Commercial loans and personal loans are part of the installment loans, meaning that the borrowers must repay them with regularly scheduled payments or installments.
We also differ the loans based on the loan amount. There are:
- Specific amount loans
- One-time amount loans
- Open-ended line of credit up to a specified limit.
Loans can also be described as:
- Revolving loans – can be spent multiple times if the repayment is made after the first payout; to get a brighter picture, credit cards are revolving loans, as same as home equity lines of credit (HELOC)
- Term loans – refer to the loans paid off in equal monthly installments over a set period; a car loan or a signature loan are good examples of term loans.
Special considerations
You should pay additional attention to the interest rate, as interest rates make a significant difference in loans – they are the ultimate cost to the borrower.
One simple rule you should know: loans with higher interest rates either have higher monthly payments or take longer to pay off compared to loans with lower interest rates.
The interest rate on loans can be set at simple or compound interest.
Simple interest is the interest on the principal loan. Imagine that the simple interest rate on a loan is set to 18% annually. This would result in a borrower paying the total of 1.18 x loan amount to the lender by the repayment date.
Compound interest is the interest on interest and means more interest money has to be paid by the borrower. The interest is not only applied to the principal but also the accumulated interest of previous periods. At the end of the first year, the lenders calculate and charge the principal plus interest for that year. At the end of the second year, the borrowers are expected to pay the principal and interest for both years. This rule applies for every year to come.
With compounding, the interest owed is higher than that of the simple interest method because interest is charged monthly on the principal loan amount, including accrued interest from the previous months. Loan companies usually charge compound interest — especially if the loans are not short-term — since the return for them is much higher.
What are Courtesy Loans?
Courtesy Loans are short-term loans that require very little documentation to be approved. As a “courtesy” to customers, the application process is designed to be fast and straightforward, so many courtesy loans can be approved and funded on the same day.
Due to the unique application process and specific requirements, Courtesy Loans are also known as quick loans, short-term loans, cash loans, or payday loans.
Courtesy loans differ based on the landers and their loan terms. They all have in common that the borrowers will be able to get the money quickly and easily. This comes with a specific price in the form of an interest rate.
Bear in mind that some lenders will charge pricy their service by charging you a high interest rate. Others might require you to apply for credit in your bank or credit union if your financial situation is not promising. On the other hand, if your repayment history is good, you can expect offers to renew your loan (similar to revolving loans we already discussed). This loan option can come quite handy, or if you are not careful – put you in a loan cycle that accumulates debt over time, making it hard for you to pay it off completely.
The application process for Courtesy Loans
Courtesy loans — as a courtesy to customers — require a basic and simple application process. Lenders are the ones who have the final word about the application for a courtesy loan, but most of them begin with a simple online or in-person application form. If you apply in person, you can rely on a staff member to help you out. Online loan applications are usually supported by online customer support offering a friendly service. The conclusion is – you can choose both online or in-person application process and still be guaranteed quick and straightforward service.
To prepare for your application or an appointment in the best possible way, ensure that you have your identification and contact information, income reports, and requested loan amount prepared in advance. The lenders might require additional documentation such as income verification or personal references to approve the loan, but this would usually be all you need.
If your financial state checks and your financial needs are promising enough, you can expect to be granted a loan on the same day that you apply. Payday will depend on the way of your application; if you apply online – you can expect the funds to be deposit in your account within 24 hours, and if you apply in person – you will most likely receive a check on the spot.
Courtesy Loans are available throughout the country: Albuquerque, Boonville, Farmington, Jefferson City, Missouri, Rio Rancho, New Mexico, etc. All you have to do is find the closest one to you.
Pros of Courtesy Loans
There are quite some upsides to the courtesy loans. We highlighted the most important ones.
Eligible for almost everyone
Since the lenders do not require deep credit score checks and validation, borrowers with credit challenges can also apply for courtesy loans and expect to be granted.
Fast process time
Courtesy loans are also known as quick loans since the application process is relatively fast and straightforward. Borrowers can expect the payout on the same day they applied for the loan.
Unlikely credit checks
In most cases, the lenders will not require credit checks, meaning that the courtesy loan would not show up on your credit history. This can be a benefit if you plan to apply for other financial services in the future.
Improve credit score
If your repayment history is not so good, you can choose to report the repayment of the courtesy loan, which is easier to repay, thus improving your entire credit score.
Cons of Courtesy Loans
There are also some downsides to the courtesy loans. Here are the most important ones you should be aware of.
High interest rates
Easy and quick access to the loan can be charged highly. Added to the fact that the lenders do not run a deep check of the borrowers’ financial state, high interest rates help them lower the risk of granting the loans.
Unnecessary loans
If you make your repayments timely, you can expect to be contacted to renew your loan or apply for an additional. In this marketing funnel, further investment in your home or life, in general, can sound tempting, so you might find yourself applying for unnecessary loans.
Alternative financing options
What are the alternatives to the courtesy loans? There are some traditional alternatives, but also innovative ways you can choose from.
A traditional loan
You can always choose a traditional loan. This will require additional paperwork and a better credit score but can come with a much lower interest rate.
Borrowing from family or friends
Not a pleasant option, but the one that can come with the lowest or zero interest rate. If you have someone in your environment you can borrow money from, this could be an option.
Credit cards
We already explained how credit cards are a type of revolving loan, meaning that you can spend the credit you have – repay it, and then spend it again. Many credit cards offer additional benefits, so make sure you check if this is a valid option for you.
Secured loans
Secured loans come with collateral – usually a house or a vehicle. If you are looking for a higher loan amount or you have a poor credit history, this might be a suitable alternative for you.
Infinite banking
The concept of Infinite banking is the learning Wealth Nation uses to help clients take over the control of their finances and stop depending on the banks or other financial institutions. Wealth Nation teaches us to behave as the banks, meaning to become our own bankers and borrow our own money.
You can do this by purchasing a Whole Life Insurance Policy that would grant you access to cash when you need it without paying taxes on your cash value growth. Not only will you be able to borrow the money against your insurance (at any point in time, with a low interest rate), but you also will be able to grow your money over time. Becoming your own banker is our recommendation when it comes to managing personal finances.
Final thoughts
If you’ve come to the end of this article, you can say that you know everything that needs to be known about courtesy loans. If you are still interested in applying for one, you can do it already today – either online or in person.
However, we honestly encourage you to explain further the Infinite Banking concept and learn with Wealth Nation how to manage and grow your finances in the best possible way!