Lending markets are replete with borrowing options, addressing wide-ranging personal funding needs. From short-term alternatives guaranteed by your paycheck, to long-term, secured financing aimed at major purchases, loans and credit opportunities are available for every imaginable purpose. In fact, there are so many financial products to choose from, sorting through finance options can leave you with questions about the borrowing process.
What is collateral? Do I need a guarantor? Is revolving credit the same thing as a variable rate loan? Addressing these and other related concerns is a natural part of personal finance, helping you make the best possible borrowing decisions.
Essential personal finance understanding includes knowledge about interest rates, loan terms, credit references, and other important aspects of the lending industry. With the basics on board you’re prepared to navigate lending markets and negotiate the best possible credit terms for your unique circumstances.
Understanding Common Types of Loans and Credit
Most loans are designed for specific functions. Mortgages support the housing industry, furnishing massive loans for houses and other types of real property. And car loans are reserved exclusively for transactions involving cars, trucks, and related equipment. The terms of each type of loan reflect its purpose. Mortgages, for instance, extend for decades, so interest rates are relatively low. And since car loans move sales forward, aggressive terms sometimes offer financing with an interest rate of zero per cent. Understanding when and where to apply these types of financing is fairly straightforward, but some other credit opportunities have flexible functions.
Credit cards represent typical revolving credit arrangements, extending purchase power for a fee. Depending upon the terms of your card holder agreement, credit card accounts commonly allow charges to be made during a month long billing cycle, which come due after a grace period. This type of credit earns its name from users’ ability to roll balances from month to month without settling up on the entire outstanding sum. Whatever isn’t repaid during the billing cycle is subject to interest, causing the card balance to grow – even without adding new charges.
The flexible convenience of “plastic” has become the point of purchase standard, facilitating a vast majority of sales. Revolving credit cards’ potential for abuse, however, calls for an extra measure of discipline from users committed to responsible debt management.
Secured credit relies on an asset serving as collateral. Mortgages and other secured loans give lenders special rights recovering damages in the event of default. Whether it is your house or another valuable item offered as collateral, lenders are entitled to seize the property to recovery unrepaid financing. Unsecured loans are riskier for lenders, because they are issued without collateral. For that reason, unsecured personal loans typically carry higher interest rates than secured financing.
Alternative financing includes payday loans and other types of funding for good and bad credit applicants. These flexible solutions commonly use your paycheck to guarantee repayment or require a “guarantor” be added to an application, to reinforce.
Online resources make it easier than ever to compare credit opportunities. Readies and other sites maintain timely listings, featuring current rates and terms. These resources enable site visitors to compare various funding alternatives side by side, furnishing testimonials and other information about loan providers.
Individual borrowing opportunities should be evaluated according to your personal priorities, but loan conditions should also hold up to objective standards. If there is anything about a lender that doesn’t measure up, pursue other avenues. Top lenders are:
- Highly Rated
- Service oriented
- Reasonably compensated
Comfortable answering all you questions
In addition to consumer information shared by lenders, various financial charities provide guidance and assistance managing money. These impartial agencies offer encouragement and actionable advice for citizens in need. If you’ve explored independent resources, yet still have questions, charities offer helpful information about the lending process.
Understanding lending practices and the types of available loans helps you make prudent financial decisions. To keep finance costs as low as possible, without sacrificing access to credit, assess lenders and their products with an eye toward value and transparency.