Facts About Five Kinds of Loans
Neither a lender nor borrower be, Shakespeare wrote in Hamlet. Luckily for millions of people who are the proud possessors of homes, businesses, cars and college degrees, there’s an entire industry that didn’t listen to Shakespeare. The loan market encompasses many different kinds of lending for many purposes from mortgages and home loans to payday loans to float a borrower through a short-term financial emergency. It is also an extremely complex market with practically incomprehensible contracts and a language all its own. If you’re shopping for lending of any kind, understanding some basic facts about the most common types of loans can help you get the money you need safely and at an affordable cost.
Facts About Home Mortgage Loans
Home loans, usually called mortgages, are secured. That is, the bank agrees to lend you money to buy a house on the condition that if you fail to repay the money according to their terms, the bank takes ownership of the house, which it can sell to repay the money it lent you.
A home equity loan is often called a second mortgage. You can take out a second home mortgage even if you are still paying off your original mortgage, but it will mean that you are paying two payments.
The amount you pay for a home mortgage is dependent on three things: the interest rate, the amount of money that you borrow and the number of months you take to pay it back.
Always read your entire loan contract and make sure you understand all of the clauses and conditions. Details that seem insignificant can end up costing you a lot of money.
Facts About Auto Loans
Like home mortgage loans, auto loans are usually secured loans with the vehicle serving as collateral.
You will nearly always be required to carry comprehensive insurance – the most expensive options – as long as you have auto loans outstanding.
Many auto dealerships and car companies offer their own auto loans. Always shop around for the best interest rates before deciding on a loan. Often, you’ll get a far better deal if you arrange your own auto financing through a bank.
Facts About Personal Loans
Personal loans are usually unsecured loans, extended on the strength of your good credit without any collateral.
The interest rate you’re offered when you take out a personal loan will depend on how high your credit score is. The better you are about paying your bills on time, the higher your credit score will be.
If you have excellent credit, personal loans may be more affordable with lower interest rates than other types of loans.
Facts About Payday Loans
Payday loans are not extended by banks and are not regulated by the same agencies that regulate banks. Every state has its own regulations regarding payday lenders. It’s important to know the laws governing payday loans in your state if you decide to make use of them.
Payday loans are very high interest loans. The amounts are usually small and the interest rates are very high. Most experts recommend that you make payday loans a last resort even in a dire emergency.
If you do resort to using payday loans to manage a financial emergency in which you have no other options, make sure that you understand the contract you signed and abide by it to the letter.
Avoid rolling over payday loans by taking out another payday loan. Doing so can turn into a financial trap that’s nearly impossible to escape.
Facts About Student Loans
Student loans enable hundreds of thousands of people to attend college and earn advanced degrees.
The federal government provides many different programs that include student loan guarantees and student loan subsidies.
The various student loan programs have undergone significant changes since 2009, especially in the rules applying to student loan consolidation. If you have an outstanding student loan, it’s worth your while to learn about the new rules to see if they can bring down the cost of your payments or the total amount of your loan.
Loans offer the opportunity to buy something you can’t immediately afford, improve your career prospects and provide a secure home for your family. They also can become a dangerous trap that makes it difficult for you to afford your family’s daily needs. Before you decide on taking out a loan, be sure that you understand the contract and can afford to make the payments you’re agreeing to pay.
Chris Robertson is an author of Majon International, one of the world’s MOST popular internet marketing companies on the web.
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