What Kind Of Loan Do You Need?

At some stage in almost everyonmes lif they ask themselves, what kind of loan should I get? It's true that this subject gets less attention than it deserves because it seems that nearly everyone's in a hurry to get the money and move on to the higher priority which is whatever they wanted the loan for in the first instance. Let's start with this.

How much do you know about loans? This article intends to briefly describe the most important types of loans, so that you can get a global view over this issue.

The process of lending goes like this: the borrower receives an amount of money which he pays back to the lender within a fixed period of time. The cost of the service is reffered to as interest rate. Loans may be secured or unsecured, with periods of time ranging from a week to even more than 20 years, and with annual interest rates of one up to three digit percents.

SECURED LOANS

Mortage

A mortage is a common type of loan generally used in purchasing properties. If you want to purchase residential or commercial real estate and you cannot afford to pay the full value immediately (and this happens in most of the cases), you can arrange a mortage. You lend money and purchase the property and the financial institution is given security

by the title of the house until you pay off in full.

Home equity loans

By using the equity in your home, you can receive a significant amount of money that you have to repay over a fixed period at a low interest rate. If you fail to repay, you may lose your home. However, this is a popular source of finance.

Car loans

You can take out this kind of loan if you want to purchase either a new or a used car. The loan is secured by the car itself. The loan period is shorter than mortgages , as it corresponds to the useful life of the car.

UNSECURED LOANS

Credit card debt

The name of this type of loan comes from the small card issued to the user of the credit card system.You can pay those who accept credit cards without exceeding a preestablished credit limit. Basically, you borrow money from the issuer. With every purchase made, you agree to pay that amount of money plus an established interest.

The difference between a credit card and a debit card is that the former does not remove money from your account at each transaction. Every month you receive a statement indicating the amount owed for each purchase and the total one. You must pay at least a part of the bill by a due date. The interest charged by the credit issuer has a much higher rate than the ones charged in many other types of loans.

Personal loans

The most popular personal loans are the payday loans. You can borrow from $100 up to $1000 for a short period of time (regularly two weeks) and at a very high interest rate (you pay something between $10 and $20 for each $100 borrowed). If you cant pay back at the established payday date, you can pay the finance charge again and roll the loan for another two weeks. For instance, if you borrow $400 for a two-cycle payday loan period (meaning a month, usually) and the finance charge is $15 you get to pay back a total amount of $520.

Bank overdrafts

You qualify for this type of loan if you have a bank account in good condition.When the withdrawals from your bank account exceed the balance, the account gets a negative balance and it means that your provider is offering you credit. In case you have a prior agreement wth the provider and you have an established overdraft limit, any withdrawals within that limit are charged at an agreed rate. Otherwise, the interest rate might be much higher.

Credit facilities or lines of credit

A line of credit is a flexible way to get extra funds for expenses such as house repairs, vacations, or even to purchase an object you desire but dont have enough money for. In order to qualify for this type of loan you must have a clean credit history and a fixed income. The total amount of money you can make use of is established from the beginning and it depends on your income.

Corporate bonds

A bond is a loan in the form of a security. The issuer (the borrower) owes the lender (the bond holder) a debt and he must repay the principal and the interest (the coupon) within a fixed period of time. This fixed term is also called maturity and it is usually longer than one year. The bond issue might contain other stipulations too.

When you consider getting a certain type of loan, you must be very cautious regarding abuses. You must read the contract carefully, paying attention to each detail and make sure you understand all the terms. Otherwise you may find yourself in an awkward position relating to the loan by not being able to repay it.

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