A Little Lesson on Loans
The opportunity to spend money is everywhere. There is no shortage of places that will take your cash. In fact, to keep the money flowing out of your wallet, banks and merchants continually come up with easier ways for you to spend it. But when it comes to borrowing money, suddenly the cash pipeline doesn't operate so smoothly. Money becomes a more complex issue with documents and terminology that practically require you to have both an MBA and Law degree to fully understand. Before you get dazed by the paperwork and lost in the legalese of loan products, here is a quick lesson on loans. 1) The Basics
When you get a loan, you are borrowing money with a promise to pay back the original amount (principal) plus an extra amount as a fee (interest) for the privilege of borrowing. The amount you pay in interest is normally a percentage of the loan amount -- the interest rate. Example: If you borrow $100 with an interest rate of 10%, you will pay back $110. That consists of the $100 principal plus $10 interest. 2) Loan Categories
From a broad perspective, loans fall under one of two categories: a) Installment loans and b) Revolving Credit loans. a) Installment loan: The installment loan is probably what most people think of when talking about a loan. Money is borrowed from the bank in one lump sum and normally paid back in installments, or increments, over a set period of time. The sum paid back can include both the principal plus interest or the payments may contain interest only with the principal being paid all at once in the last loan installment, known as a balloon payment. Loans that fall under this category include mortgages, personal loans, and auto loans. b) Revolving Credit loan: Revolving Credit (also called Revolving Line of Credit or Credit Line) is a loan where a lender allows someone to borrow money up to a specific limit, called the credit limit, whenever money is needed. The borrower draws down the credit limit every time an amount is borrowed. The borrower can use as much of the credit as he or she wants. When a repayment is made, the available credit rises by the paid amount. Example: Borrower gets a credit limit of $1000. $100 of the credit is used to buy merchandise. The credit limit now decreases by $100 to $900. A day later, the borrower decides to borrow another $100 decreasing the credit limit to $800. Next month, borrower pays back the $200 plus interest and the credit limit goes back to the full $1000. Loans that fall under this category include credit cards, home equity line of credit (HELOC), and business lines of credit. 3) Rates
As you already learned, the interest that you pay is calculated as a percentage of the principal amount. Some loans have a fixed interest rate while others have an adjustable rate of interest. A loan with a fixed interest rate means that the interest you pay stays the same throughout the life of the loan. The adjustable rate loan, on the other hand, has an interest rate that can fluctuate from period to period. That means a borrower can expect to pay more or less interest as the rate fluctuates. The rate's movement is tied to indexes that track a basket of interest bearing investments. As the interest rates of the index moves up or down, the interest rate on your loan is adjusted accordingly. There you have it. You just completed your lesson on loans. Now that you have a grasp of the basics of loans, you will be better prepared to understand the minute details of the loan that you need. Jon Galanty is a financial writer for eMoneyCentral.com. Visit http://www.emoneycentral.com to find out more about loans and to get other great money tips.
Related News
|
 |
|
|
RELATED ARTICLES
Quick Cash Advance Payday Loan - Get it Free or Cheap
If you are looking at getting a payday loan or a cash advance loan, you probably already know that one of the main drawbacks to getting one of these types of loans is that the fees can be so high.
Secured Loans House the Most Positivistic Consequences of Loan Borrowing
One of the most enduring myths of loan industry is that secured loans are perhaps the most favorable loan type available. And guess what this myth is in fact one of the most enduring truths ever. Secured loans amass all that is good and positive about taking a loan. The score card of secured loans is improving day by day in the face of the fact that borrowing money has increased in popularity in recent years. With a tool like secured loans in your hand, borrowing money is very easy.
Fast Cash Payday Loans
If you need cash now there are several options available to you. The first is your debit card, assuming you are in good standing at your bank. Just head to the ATM and faster than you can say "I need cash now", you'll be good to go.
Shopping for a Personal Loan
Most Internet users are now extremely comfortable using the Internet to research and buy items that we need, mainly because we know that e-tailers probably have the lowest prices and we can avoid heavy sales pitches and crowded stores.
What is Bad Credit UK?
Bad credit UK is a term that many people don't fully understand. After all, credit itself can sometimes be difficult to understand? adding the description of "bad" to it can make it that much more confusing.
Finding A Thin Credit Or No Credit Motorcycle Loan
It is no secret that thin or no credit can hurt just like bad credit when shopping for motorcycle loans. The main reason for this is that lenders all have a variety of strategies on how to approach motorcycle loans in their loan portfolios. Some lenders see motorcycles loans as a risky but feasible business investment, while other lenders label motorcycles loans as a high risk money losing investment. Overall, the general perception of most lenders is that a motorcycle is a "toy" and therefore motorcycle loans are much more risky than other types of loans. This "toy" labeled perception from lenders is a critical component which makes shopping for a motorcycle loan much more difficult for motorcycle buyers with thin or no credit.
Hidden Bank Loan Charges That Would Make a Pick-Pocket Envious
There can be more to a bank business loan than making interest and principal payments. Your firm may get a great rate on its new credit line or term loan but you may cry on the way home when you discover the hidden fees and charges.
Benefits of a Secured Loan
The secured loan is favoured by many UK residents seeking credit for a number of reasons:
Taking the Time to Find the Best UK Loans
When looking for UK loans, it's always important to take your time so that you can compare loan rates and terms from a variety of lenders.
Bank Auto Loans ? Best Loans for Stretch Commuters?
People have to work to survive. The desire to maintain increasingly indulgent lifestyles drives 13% of workers to travel over 100 miles a day to get to and from work. These so called "stretch commuters" make the majority of these trips by personal vehicle, but when it comes to trading in their tired automobiles for newer models should they just settle for a bank auto loan?
Should I Get a Consolidation Loan?
If you've got a really unmanageable amount of credit card debt, you might be considering a consolidation loan. A consolidation loan is a loan that you can use to pay off all your debts, meaning that you can pay them off for less money without having to worry about lots of different bills. Like anything, though, consolidation loans have their advantages and their disadvantages, and it pays to take a careful look at what they offer before you commit yourself.
All About Student Loans
A student loan is an unsecured loan made by lenders that receive government underwriting assistance. Without this government assistance, student loans would not be very practical. Lenders would find other more profitable arenas in which to loan their money. Nobody would be able to get a low interest student loan ? without the help of a parent with a substantial financial history and reasonable means. Like any government sponsored program, there are rules and regulations and red tape to deal with. In the case of student loan red tape, it all begins with a financial aid form called the FAFSA (Free Application for Federal Student Aid).
Bridging Loans - Fulfilling Financial Shortfall between Real Estate Transactions
You are trying to buy a new property and selling the current one to raise money for the new purchase. It is usually difficult corresponding sale of one property with the buying of another. This almost always leads to financial gap. For this particular circumstance bridging loans are organized.
Traditional Banks Vs Online Loan Companies
In recent years obtaining loans online has become a new and somewhat
unknown reality. Years ago one would make appointments with their
bank lenders and obtain loans the so-called old fashioned way. But in
this fast paced world, people want instant gratification. Nobody wants to
wait for approval, they want to know the outcome instantly. And for those
who only want a small personal loan obtaining one has become even easier.
Alternative Ways to Avoid Payday Loan
If you spend more than you earn on a regular basis, it is a bad practice. To overcome this situation, if you opt for a payday loan, it will be a "risky solution". Payday loan companies often take the advantages of your need and lead you in debt trap.
Be Careful With Loans For Bad Credit
If you're saddled with debt or find yourself in an emergency situation where you need cash urgently, it is possible to get loans for bad credit. Loans for bad credit will not ostracize you for bad or zero credit. Loans for bad credit will get the ball rolling immediately, sometimes too fast.
Payday Loans ? The Legal Loan Sharking Industry
Laws have been created to protect people against "Loan Shark" practices in which short-term loans are given out at excessive interest rates. There is an industry that has come of age the last couple of years that has circumvented these laws. Enter the Payday loan industry.
Finding a Cheap Secured Loan
In a time when everything seems expensive, it might seem impossible to find a cheap secured loan.Interest rates continue to climb, and prices everywhere continue to go up? but with a little patience and decent collateral (which is the property that you offer to guarantee repayment of the loan), it's relatively easy to find the cheap secured loan that you need.
Motorcycle Loans For Military With Bad Credit
Motorcycle loans for military with bad credit aren't hard to come by. In fact when you start your search for the lender you will find more then an ample supply of companies just waiting for your business. Have you really thought his purchase through though?
Finding the Secured Homeowner Loan for You
If you've been thinking of getting a secured homeowner loan, you'll find it worth your time to do a little research on these loans and to shop around for the best deal.
|
