Consumer loans are non-secured loans, just like a loan card or a home equity loan, which are issued directly by a financial institution or bank, and not a third-party credit agency. With a consumer loan, typically you get all of the cash that the bank has agreed to lend you in a single lump sum, called the principle. The interest on this principle is added to your loan balance until the entire principle is repaid. This means that you pay interest each month, just like you would pay interest on any other type of loan. When you are done paying back the consumer loan, the remaining amount due will be paid to the bank.
There are some consumer loans, however, where the loan amount is paid in one lump sum by the lender. This lump sum may be smaller than the principle owed, but it is still generally of use to the borrower because it often allows the lender to recover some of its lost funds from borrowers. This type of consumer loans has a few disadvantages, in addition to the obvious disadvantage of having to repay the entire loan amount in one lump sum; another common disadvantage of this type of loan is that it does not allow borrowers to choose their own interest rates.
Most financial institutions offer at least three basic types of interest rates for consumer loans: Variable, Fixed, and Adjustable Rate Mortgages. These terms are used interchangeably, and often consumers are unaware of the differences between the three. A Variable interest rate can change depending on the financial market and how the lender sees it. In contrast, a fixed interest rate on a home equity loan or an adjustable rate mortgage does not change based on current market conditions, and is set at the time of the loan. Most lenders will allow borrowers to choose between these interest rates when they apply for a loan.