The loans you take vary according to the purpose you want them for. This can range from financing your fledgling business to cover the expenses of building a home.
The main difficulty in taking a loan lies in deciding on the type that best suits your needs.
Here are some of the most common loans, their uses, and how your finances can be improved with them.
The loan types are diversified and can be as simple as a promissory note between family members or friends, or the more structured and complicated forms like payday, student, and mortgage, and auto loans.
There are loans for small business and retirement account loans too. The single common denominator in loans is that they are governed by certain strict guidelines that protect the consumers from fraudulent practices. The conditions laid out should include factors like:
- Length of loan
- Default terms where the outstanding debt collection costs should be specified clearly
To get the right type of loan, you need to know about the credit types present namely the open-end or revolving credit loans, and the closed credit loans.
The revolving credit loans enable consumers to make use of their credit when they pay on the account balance they have. Credit card and home equity loans come under this type.
This is for homeowners who are eligible to borrow money based on the asset value of their home.
The difference present between the market value of the house and the amount owed for the mortgage will give an exact amount that you are eligible to borrow.
This is a method by which importers and exporters of commodities get the finance for their business.
Trade finance is not new but has been existing for many years. And if you are keen enough to know more about these types of financing options you can check here at commodity financing in Singapore to know how it works.
Closed Credit Loans
In this loan type, a fixed amount is given for a particular purpose, and for a specific loan term. The loans that come under this category are mortgages, payday loans, car loans, appliance loans, etc.
This is a cheap form of borrowing and in some cases, even free, provided you are eligible. The eligibility includes a good credit rating and regular income.
The APR can range from 0% to as high as 28%. And if you miss out on the payments, you will have to pay a huge amount as default charges.
When used wisely, these loans are cost-effective as well as convenient.
This is given by banks, so consumers are able to buy homes without paying upfront for it. Though the interest rates are the lowest, you stand the risk of foreclosure, if you do not see to the loan payments.
This kind of finance is obtained from a financial institution other than a bank and the amount borrowed is sufficient to see you through the next payday, when you repay the loan. Interest rates are high here.
There are other types like personal, student, senior, and small business loans. Choosing the right one should be done only after you assess the advantages and risks with each type, and how you can save money on them.
James Harris is your money advisor who educates you about different types of loans, considering your requirements. He also suggests availing the loan which functions strictly to meet your purpose without any other over-spending.