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Today I have a guest post from Dan Miller, a content contributor at Bizzmarkblog. He is a Payments officer with nearly ten years of experience in banking and international payments in the Australian banking sector. Dan has a masters degree in finance and banking. He is married and also a father of a beautiful little girl.
Both individuals and business owners apply for a loan for various reasons. For instance, as an individual, you may want to purchase a new house, a car or simply get your finances in order with a bit of help from a loan. For businesses, loans are a good way to acquire new assets, make an investment or procure inventory. Nevertheless, a loan offers instant cash to cover whatever expense there may be.
However, it’s important to understand that taking a loan means getting a specific amount of money that you must pay back in a specific amount of time, with interest. How high the interest rate will be, depends on a type of loan you apply for. Here are a few different types of loans that may help you decide which one to apply for.
People most commonly apply for personal loans. Individuals may get a loan from a lender to cover any expense that can vary from a couple of hundreds of dollars to a couple of thousands, such as covering a utility bill or buying a new TV. Lenders will ask you to provide a proof of income or a proof of assets that are worth as much as the loan before they decide to approve your request.
Personal loans are unsecured which means they are not guaranteed by any kind of property. That’s why lenders charge a high interest rate on personal loans with an average of 10-12%. Another downside is that personal loans must be paid off in a year or two.
As their name suggests, these are the type of loans with a fixed interest rate. Interest rate doesn’t change for this type of loan, which means that the borrower pays the exact same amount each month until the loan is paid off in full. These loans are excellent for individuals who are looking to buy a property.
With the fixed interest rate, you can easily plan out the rest of the expenses when buying a new house, such as mortgage, utility bills, maintenance and taxes. However, due to the benefit of being fixed, interest rates tend to be slightly higher than those of variable interest rates because they involve less risk.
These are secured type of loans because the borrower is offering their property as a guarantee or collateral that the loan will be paid off in full. Furthermore, the borrower is taking a loan against the value of their home and their home-equity. In order to calculate the amount for home-equity that will affect the loan, you should take the difference between your home’s market value and the amount of money that is still owed for your mortgage.
People usually take this type of loan to consolidate their debt or to make additional improvements to their homes. These loans offer suitable interest rates with around 20 years of repayment period. However, inability to pay off the loan may result in losing your home. There are agencies that offer finance advice and can help you better understand the risks. For instance, if a single family member is earning an income, then a home-equity loan may place you in a dangerous position should something bad happen to that person.
Credit card loans
Credit cards are a type of loan that both companies and individuals like to take because of its convenience. They are accepted by almost everyone as a means of payment, meaning you don’t have to have cash on you. Aside from the credit card loan, people can obtain credit extensions of $5,000 and $10,000 of credit worthiness.
Credit cards can be used as a means of payment for virtually any expense. However, credit cards are the most expensive loans because companies can charge you 20% annual interest rate. Also, it’s easier for people to overuse their credit cards and mess-up their debt since they can just swipe the card and not worry about the cash.
There are plenty of types of loans out there. Which one you should apply for depends on your needs and the circumstances that revolve around a loan, such as interest rates, repayment period and so on. Just remember to get all the facts straight before you apply for a loan.