All You Want to Know About Loans
Posted by admin On December 10, 2009 11:53 PM
Loans are generally borrowed through financial institutions including banks and credit card companies. They
are a kind of debt that you are taking on to solve your monetary problems. On approval, you would be getting
a loan amount that you need to pay back in terms of monthly payments to the loan company in a pre-defined
period of time, which depends on your capacity to repay loans . In some cases, the lender asks for collateral
or some kind of security and reserves the right to take an asset of yours such as home or a car so that, in
case you fall behind with the payments, the lender can recover the money on time. Loans are typically offered
at a monthly charge that you need to pay, commonly referred to as the interest rate of the loan.
Types Of Loans
? Secured Loan ? the type of loans in which the lender would ask for collateral for providing the loan amount. The borrower can put
up his home or a car as security. This collateral is utilized to recover the losses incurred due to non-payment of loans by the borrower.
A secured loan has two further divisions ? open-ended and closed-ended. An open-ended secured loan is secured by an asset such
as a home. In the case of close-ended secured loans , the loan companies have full rights to repossess the product for which the loan
is provided. Examples of this type of loan are an auto loan and a home loan. If you fail to pay the monthly payments and default on
the loan, then the lender has the full authority to take back your property or your vehicle.
? Unsecured Loan ? Unsecured loans are given without providing any security to the lender. This type of loan is generally drafted as
a legal loan document and, in the case of any default, the borrower can be taken to court. Personal loans , credit card lending, bank
overdraft facilities and other credit facilities are examples of unsecured lending. Before offering an unsecured loan, financial
institutions thoroughly check the current financial condition and historical credit history data of the borrower. If you want to use an
unsecured loan, you must have good credit history in addition to regular monthly income in order to convince the lender of your
? Mortgages ? Mortgages are a kind of secured loans that are generally borrowed for purchasing a home. There are different types of
mortgages offered by financial institutions, including the fixed-rate mortgage, adjustable-rate mortgage, 15-year and 30-year fixed-rate
mortgages and balloon mortgages. In the case of a fixed-rate mortgage, the interest rate and therefore the monthly payments by the
borrower remain fixed throughout the loan tenure. In the case of adjustable rate mortgages and balloon mortgages, the interest rates
are affected by the prevailing interest rates in the financial markets.
A loan is best borrowed when it would be used to meet some unavoidable financial need. You should also keep in mind one important
rule of thumb with regard to advances ? only borrow the amount that you would be able to repay with ease and on time. If you make a
habit of repetitive borrowing and fail to make timely payments, this can adversely affect your credit rating. Limit your borrowing and
make timely payments.
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