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How Do Consumer Loans Work? (The Ultimate Guide)

Consumer loans are a type of credit that individuals can obtain to finance their personal expenses, medical procedures, or major purchases. These loans can help consumers achieve their financial goals, whether it’s getting cosmetic surgeryrenovating a home, or paying for after school tutoring services. However, it’s important to understand how consumer loans work to make informed decisions about borrowing money.

In this guide, we’ll explore the different types of consumer loans, how they work, and what factors to consider when deciding whether to take out a loan.

Types of Consumer Loans

There are several types of consumer loans, each with its own unique features and requirements. The most common types of consumer loans include:

Personal Loans: Personal loans are unsecured loans that consumers can use for any purpose, such as major medical procedures, home improvements, or unexpected expenses. These loans typically have fixed interest rates and repayment terms, and borrowers must have good credit to qualify.

Auto Loans: Auto loans are secured loans that consumers can use to purchase a new or used vehicle. These loans typically have fixed interest rates and repayment terms, and the vehicle serves as collateral for the loan.

Home Equity Loans: Home equity loans are secured loans that consumers can use to borrow against the equity in their homes. These loans typically have fixed interest rates and repayment terms, and the home serves as collateral for the loan.

Credit Cards: Credit cards are a type of revolving credit that consumers can use to make purchases and pay off over time. Credit cards typically have variable interest rates and may come with rewards programs or other benefits.

How Consumer Loans Work

Consumer loans work by providing consumers with access to funds that they can use for personal expenses or purchases. When a consumer takes out a loan, they receive a lump sum of money upfront and agree to repay the loan over a set period of time.

Each loan has its own interest rate, which is the cost of borrowing money. The interest rate may be fixed or variable, depending on the type of loan. A fixed interest rate stays the same for the entire repayment term, while a variable interest rate may change based on market conditions.

In addition to the interest rate, loans may also come with fees such as origination fees or prepayment penalties. It’s important to understand these fees before taking out a loan to avoid any unexpected costs.

When a consumer takes out a loan, they agree to make regular payments over the repayment term. These payments typically include both principal and interest and are calculated based on the loan amount, interest rate, and repayment term.

Factors to Consider When Taking Out a Consumer Loan

Before taking out a consumer loan, there are several factors to consider:

Interest rate: The interest rate determines the cost of borrowing money, so it’s crucial to compare rates from multiple lenders to find the best deal.

Repayment term: The repayment term determines how long the borrower has to repay the loan, and longer terms typically result in lower monthly payments but higher total interest costs.

Fees: Loans may come with fees like origination fees or prepayment penalties, so it’s important to understand these costs and the terms before taking out a loan.

Credit score: Lenders may consider the borrower’s credit score when determining whether to approve a loan and what interest rate to offer.

Collateral: Some loans, such as auto loans or home equity loans, require collateral to secure the loan. It’s important to understand the risks associated with using collateral before taking out a loan.


It’s also important for consumers to understand their own financial situation and budget before taking out a loan. Borrowing too much money or taking on payments that are too high can lead to financial strain and difficulty making ends meet. Consumers should only borrow what they can afford to repay and ensure that their budget can accommodate the loan payments.

When shopping for a consumer loan, it’s a good idea to compare rates and terms from multiple lenders. This can help consumers find the best deal and save money on interest over the life of the loan. United Credit has a lending partner network, which offers consumers access to more financing options, more opportunities for approvals, and more peace of mind to pursue the purchases they need.

In addition, consumers should read the loan agreement carefully before signing. The agreement will outline the terms and conditions of the loan, including the interest rate, repayment term, fees, and any other important details. Consumers should ask questions if they need clarification on any aspect of the loan agreement and ensure that they fully understand the terms before agreeing to them.

Consumer loans can be a useful tool for financing personal expenses or purchases. However, it’s important for consumers to understand how they work and what factors to consider before taking out a loan. By comparing rates, understanding fees, and considering their own financial situation and budget, consumers can make informed decisions about borrowing money and achieving their financial goals.

To explore your consumer loan options with our lending partner network, you can start an application here.

United Credit strives to keep the content shared on this blog accurate and up to date. You are urged to consult with business, financial, legal, tax and/or other advisors and/or medical providers with respect to any information presented. Opinions expressed here are the author’s alone and have not been approved or otherwise endorsed by any financial or medical institution. This content is intended for informational purposes only.

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Jessica Payan

VP of Human Resources

As a certified Professional in HR (PHR), Jessica brings 10 years of HR experience to the United Credit team. She is responsible for managing the strategy and processes related to building and retaining an exceptional team of professionals. Jessica is passionate about supporting each employee to be their most successful and exemplifies our core values daily.

Aaron Mishkin


As Controller, Aaron manages the income and expenses of the Company and the incoming and outgoing loan funds with the utmost integrity. He is a lifelong learner with multiple degrees and certifications to his name and 25 years of working in financial services. Aaron’s reason behind being a part of the United Credit team is to make a difference in the Company and to his coworkers, our partners, and our customers.

Jorge Lazaro

VP of IT

Jorge works closely with cross-functional partners throughout the business to develop virtual experiences and oversees the IT team that keeps our platforms running smoothly. His goal is to provide an optimistic approach to the challenges we face while supporting our staff and partners with respect. With over 6 years of working for United Credit, Jorge brings a wealth of knowledge about our history and computer engineering.

Brett Walisever

VP of Strategic Accounts

Brett spearheads our business sales growth by identifying and supporting new merchants in partnering with United Credit. He has 10+ years of sales, contract negotiation, and market strategy experience that he brings to each new merchant and our team. His desire is to support the growth of United Credit and the merchants we serve through respect and collaboration.

Andria Sullivan

Chief Experience Officer

Andria is a seasoned leader with over 10 years of experience in providing world-class customer service and directing consumer finance processes. She oversees the tracking, reporting, and achievement of our company goals, long and short-term projects, and special initiatives. Andria is service-minded when it comes to collaborating internally and externally, and it shines through in every interaction.

Nate Moster

Chief Sales and Marketing Officer

As Chief Sales and Marketing Officer, Nate expertly drives revenue growth for United Credit by leading sales and marketing strategies across all channels. With over 20 years of experience working with global brands in various industries, Nate has a proven track record of boosting sales, expanding market share, and building strong relationships. His unique ‘right-brain + left-brain’ approach combines business acumen and strategic thinking with striking creative execution, ensuring United Credit’s sales and marketing efforts consistently deliver results for continued success.

Matthew Libman

Founder & President

Matthew is the President and Founder of United Credit. Matt founded fintech company United Medical Credit in 2011 to connect consumers and businesses with an array of experienced, innovative financing solutions. In 2022, the company grew and became United Credit, fueling an expansion into retail markets while retaining its expertise in specialty healthcare.

Since its founding, Matt has provided leadership for all aspects of the Company, emphasizing long-term growth while ensuring United Credit delivers value to its consumers, merchants, and business partners. The Company has risen in the fintech space as a preferred consumer financing partner under his tenure.

Matt is also an active member of YPO (Young Presidents’ Organization), the world’s largest leadership community of company chief executives.