Wise words about loans
Are you struggling with the fact that you really don’t know anything about loans and how to stay out of trouble with them? In this article I can offer you a solution that will help you to understand loans, the best ways to budget and how to make loan decisions!
Almost nothing in life is free and loans are no different. Loans are basically a seemingly non complicated way of lending and borrowing but you need to take the time to read all the details of the agreement before you sign it. A loan is an advancement of money or something of value with the promise or a bargain struck between the parties involved to redeem the full sum with interest within a stipulated period of time. The interest is usually calculated proportionate to the sum borrowed and paid back along with the principal in segment for an agreed amount of time. The terms and interest amounts are usually not negotiable and in most cases are quite high. However it is still the most popular means of acquiring something legally and legitimately where payment is not immediately completely covered.
The general calculation of a loan would be that, more is incurred the longer the period taken to pay off the initial sum borrowed, and even more will be added on to the agreed sum should the schedule of payment in place is not strictly kept. Although banks are the most popular avenues from which to seek out a loan from there are also other lending establishments that function sole for the purpose of facilitating loan arrangements. Most of these are legal and with strict rules in place with proper accompanying documentation.
There are two very basic types of loans which are the secured one and the unsecured one. The secured ones are based on some kind of acceptable collateral being offered in place of the loan which may include anything of value such as property, stocks, bond and others, and the unsecured one doesn’t offer anything. In terms of their purpouse, we will present the most important loans: business loans, home equity loans , car loans and payday loans.
The basics of a business loan is very similar to that of other types of loans, which is the agreement struck between parties to lend a stipulated amount for a business where upon payment is returned with interest to the borrower over a fixed period of time. These loans can be gotten from different sources of which banks are usually featured as the first choice as they generally do not own any part of the business and are just in the agreement to make money.There are also equity investors, involving establishments or individuals who are willing to lend a sum of money in return for a vested interest in the business which usually comes in the form of shares in the said business.
The main differences between the two is that the former does not have any direct involvement in the business and only requires for the principal sum borrowed to be returned in full with interest paid over an agreed amount of time but the latter may sometimes incur the involvement of the lender and though no payment is required for the sum borrowed, the lender now legally has a share in the business entity. The promissory note is usually a document that is signed and witnessed in a legal setting where loan amounts, payment requirements, interest charged, time frames and any other agreed upon demands are clearly stated in the documentation.
loans can be made in different methods which are also agreed upon at the onset of the process. These may include the following:
• Lump sum payments
• Periodic interest and lump sum repayment of principal
• Periodic payment of principal and interest
• Amortized payments
• Amortized payments with a balloon.
Home equity loan
The home equity loan is another popular style often used for business purposes. Basically the home equity loan is a second mortgage taken out over an already existing one in which the property owner leverages the equity of their home against the borrowed amount.
The two main categories of the home equity loan would include the fixed rate loan and the line of credit loan. Both these are equally popular but usually chosen according the needs and compatibility of the borrower at the time monetary funds are an issue.
• The fixed rate loan provides a single, onetime payment to the borrower in which the repayment is done over a fixed period of time and at a fixed amount. The payment and interest does not change over the stipulated agreed upon period.
• Lines of credit style however differs in the basic dispersement of the borrowed amount. The initial amount is usually offered and agreed upon at the onset of the agreement; however the dispersement can be taken in amounts required at a particular time and for a particular amount. The monthly payments will vary depending on the amounts dispersed as the interests are only calculated on what has been utilized and not on the whole amount. However all outstanding amounts have to be repaid in full at the end of the due date of the agreement.
The home equity loan provides for a comparatively easy source of cash although the interest rates are higher than the first mortgage it is still a more viable way of acquiring cash resources quickly. It has been noted that besides using the money for business purposes the home equity lines of credit is also recommended to be a better option to use than credit cards advances as the interest rates incurred are far less in comparison. There are also better tax relief benefits in using the home equity loan option.
Car title loans are also another type of typically short term loan styles. In this scenario the car which is already paid for and considered a viable asset is put up as collateral for the intended loan amount. The loan amount usually agreed upon is far less than the value of the car itself. Adding to this the interest charged for this type of loan is usually much higher than other types in the market as the risks involved are also usually higher. Although credit checks are done before the loans are approved these checks are rarely very stringent in nature.
Payday loans are probably the best option for everyone in need of quick cash! Most people turn to lending institutions such as banks, lending houses, finance houses and the likes for such assistance where some form of collateral is usually a designated requirement. The process would require the lender to look over the company’s history if any, business credit, revenues, balance sheets and equity contributions before an agreed sum can be settled upon.
However, for the benefit of those who need a payday loan, all of the requirements from above can be made online, in just several minutes! The next step would be for the borrower to provide collateral to secure the loan. The collateral is most commonly property, stocks, bonds and any other valuable assets the borrower may have that can equal or be more than the intended borrowed sum.
The following are some things that can be used as collateral to secure a loan:
• Real property – still the most popular asset to be put up as collateral.
• Business inventory and accounts receivable – this is a little trickier but banks are usually willing to lend if there is clear evidence of an authenticated sizable order in the works.
• Cash savings and fixed deposits – personal assets that are tangible are more like to be favored by the lender as their risks are minimalized.
In trying to minimize the possible occurrences of defaulting on payments, or not being able to make payments at the stipulated times and therefore incurring further interest on already outstanding amount one should consider consolidation the loans altogether. Over time and statistically this has proven to be a better option to choose from as it not only facilitates lower interest rates by comparison it also is easier to manage when all loan payments are now less thus effectively converting it into one single payment.