The world of money lending is a great place to be in if you know how to handle your cash. With a little financial cunning and a few deft swipes of a pen, you can easily finance a major extension to your house or pay for your child’s first car. But have you ever wondered what all those options are that the banks keep throwing at you?
According to http://ift.tt/17pnKPu, here are four of the most common types of bank loans currently available and information on how they work:
Open-ended loans
Open-ended loans do exactly what they say, they allow you to keep borrowing more and more money up to a certain limit. Now, if you’re not careful, this can be incredibly unhealthy for your bank balance, your mortgage or even your future welfare.
If you haven’t heard of an open-ended loan before, then that’s ok; most people haven’t. Basically, what we’re talking about are lines of credit and credit cards. Now, you may not need me to tell you the biggest problem with this type of borrowing. But, for anyone who’s unsure, it’s the interest rates. Borrow too much and you may find it incredibly hard to clear the balance.
Closed-ended loans
At the opposite end of the money spectrum, we have closed-ended loans. As you’ve probably already worked out, these are for fixed sums and can’t be extended. This means you don’t have an available credit limit; you simply borrow what you need and continue to pay off the sum until your debt is cleared.
The closed-ended loan is one of the most common ways to borrow from banks. The obvious downside is that, once you’ve got the money, you’ll either have to pay it off or take on another, larger debt if you need more money. The most common closed-ended loans available are mortgages, study loans and auto purchase loans.
Secured loans
Another well-known and popular method of borrowing money is secured loans. They are granted in return for collateral. In most cases, this involves some asset you own (or, if using a guarantor, something they own). If you default on repayments, your collateral belongs to the lender.
Now, this may seem a little harsh but the banks and financial houses are protecting their interests and customers. You won’t be offered a sum you can’t possibly repay, so there’ll be no underhand tactics there. Also, the amount you’re loaned may be subject to a valuation of the asset you’re offering as collateral and adjusted based on the lender’s valuation.
Unsecured loans
Unsecured loans are the complete opposite of secured loans in just about every imaginable way. You don’t have to offer an asset as collateral as the amount you can borrow depends on your credit history and the amount you earn. In fact, if you have a bad credit history then you can probably forget about this type of loan right now.
Not only is this type of loan more difficult to secure, but you’re going to be hit with higher interest rates than those associated with a secured loan. This extra premium is due to the inherent risk associated with unsecured money lending; if you default, the lender has to spend money on debt collectors and, if they fail to collect what’s owed, start a lawsuit to recover their money.
from Punch Newspapers
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