Different Types Of Loans And Loan Options

Different Types Of Loans And Loan Options

Different Types Of Loans And Loan Options
A loan is​ the​ redistribution of​ money between a​ lender and a​ borrower .​
As a​ borrower,​ you​ receive an​ amount of​ money from the​ lender,​ which you​ will have to​ pay back later .​
This service is​ provided at​ a​ cost,​ referred to​ as​ interest,​ or​ annual percentage rate (APR).
Installment loans are loans that are repaid in​ equal monthly payments within a​ specific period of​ time .​
Installment loans come at​ a​ cost .​
This includes the​ APR (an interest rate) and the​ finance charge .​
Cars,​ furniture,​ computers or​ household appliances can be purchased with installment loans .​
Compare fixed-rate loans,​ where the​ interest rate stays the​ same throughout the​ loan term,​ with variable-rate loans,​ where the​ interest rate can change during the​ period of​ the​ loan.
Secured loans imply that the​ borrower offers a​ guarantee,​ or​ collateral,​ for the​ loan .​
The borrower has a​ claim on​ this collateral as​ a​ repayment source if​ a​ loan is​ not paid pack in​ cash as​ agreed .​
For example,​ a​ home mortgage is​ a​ secured loan – the​ bank loans the​ majority of​ the​ purchase price of​ the​ home,​ but retains a​ lien against the​ home for as​ long as​ the​ loan is​ outstanding .​
Unsecured loans are loans that are not secured by collateral,​ such as​ credit cards .​
Because the​ lender holds no collateral,​ unsecured loans hold significantly more risk for the​ lender,​ which is​ usually reflected in​ a​ higher interest rate.
Rent-to-Own Services allow you​ to​ rent an​ item for a​ period of​ time,​ in​ exchange for weekly or​ monthly payments .​
These agreements are not loans,​ so no interest is​ charged .​
However,​ typically you​ pay 2 to​ 5 times more than the​ cost of​ the​ same item at​ a​ store .​
For example an​ electronic store sells a​ TV for $1,​500 .​
a​ nearby rent-to-own store offers the​ same TV with a​ payment plan of​ 52 payments of​ $55 every other week .​
If you​ multiply 52 weeks x $55 payments,​ the​ total cost for the​ TV from the​ rent-to-own services is​ $2,​860! If you​ miss a​ payment you​ can lose the​ item and all the​ money that you​ have already paid towards owning it!
Payday loans are cash advances given in​ exchange for a​ written check from your bank account .​
Your check is​ held until your next payday and then cashed .​
These loans are costly with a​ typical payment of​ $15-$35 for every $100 you​ borrow .​
This might not seem like a​ lot of​ money but imagine that for a​ $200 loan you​ agree to​ pay back $260 in​ 2 weeks .​
You pay $60 in​ interest which is​ the​ equivalent of​ a​ 782% annually!
TIP: Before you​ take out a​ loan compare fees and interest rates .​
Make sure you​ understand if​ the​ interest rate can change over the​ life of​ the​ loan .​
Remember there are alternatives to​ payday and rent-to-own services .​
Your community organization,​ bank or​ credit union may offer small,​ short-term loans at​ more reasonable rates .​
Paying for an​ expensive item in​ three or​ four installments could save you​ money! Shop around before you​ buy and never feel pressured to​ make a​ purchase.

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