Finally, a Simple Guide to Understanding Loans – Your Comprehensive Crash Course in Loans and Interest Rates
Loans (Photo credit: zingbot)
If you have made the difficult decision to take out a loan, then this is probably because you need financial help to maintain your quality of life or take the next step in your development. This might mean that you’re struggling financially and that you need help from a loan in order to afford your cost of living, to pay off your bills and existing debts; or it might be that your finances are fine, but you simply need a loan in order to afford a particular purchase such as a home or a car, or to help your cash flow.
Either way this is a serious commitment and you should have thought long and hard on the matter before coming to any final resolution. What may surprise you at this point though, is that even once you’ve made that decision things don’t get any easier. Now you are looking for a loan, you need to try and find the best one for you, you’ll have to understand the deals you’re being offered and you’ll be forced to navigate a whole load of jargon. This can all be very daunting – particularly if you were already nervous to be taking out a loan in the first place and it can lead to mistakes if you aren’t fully informed ahead of time. Here then we will look at some of the things you need to know when you look into the various options available and address some of the different types of loans available and the terminology surrounding them.
Types of Loan
If you are looking for a financial boost to help you afford your cost of living and pay the bills for a while, or if you want a loan to afford a new motorbike, then you will want a general bank loan to help you afford those things. In other cases though, you might want to look into the other kinds of loans offered by your bank and other organizations. This might mean for instance taking out specific loans for specific types of purchases (mortgage for a house, auto loan for a car, business loan for a business etc.). Another option is buying on finance – which is a type of loan where you pay a retailer or manufacturer in instalments for your purchase. The downside of going this route though is that you can’t use consolidation or restructuring if you struggle with these repayments. For small purchases a credit card loan may suffice, but you then need to choose the best credit card for your purposes.
On the other hand you may also want to consider using a ‘payday loan’ if you only need the money for a short period and you need it quickly. Payday loans are loans that can be paid straight into your account with minimum hassle, but which need to be paid back quickly due to high interest rates. They’re called payday loans, because people will generally use them to just bide time until their next payday.
Interest Rates
Once you know the kind of loan you want, you can then start looking into which institutions or banks offer the best interest rates. Compare interest across a number of different organizations and find which ones suit you best, but note that there are a few other considerations. For instance, the interest rate alone won’t tell you the entire cost of your loan as it doesn’t take into account other fees in the same way that the APR (Annual Percentage Rate) does. (This article explains the difference between the interest rate and APR )
Likewise you should look into things such as late fees and the repayment schedule (which tells you when and how you’ll pay back the money) to see which deal is the most flexible and the most lenient. Some lenders will allow you to structure your repayments in a way that suits you, but of course paying off your loan more quickly will save you money in the long term. You should also look into finding the best PPI (payment protection insurance) to help you insure your loan without paying the high rates that are often offered by the banks. PPI has come under a lot of fire for being miss-sold lately, you can read more about it on the Wikipedia page and it’s worth doing this so you have a better idea of the matter.
Getting Loans Cheaply
Many things will affect these rates, but generally it comes down to how much the bank trusts you to be able to pay back the full amount as represented by your credit rating. If you have a poor credit rating you may not be able to find a loan for a good deal (you may have to use a ‘low credit loan).
There are solutions to this problem though, which include taking out a ‘secured loan’ (meaning that the loan is secured against your property and that it will be repossessed should you be unable to pay it back) or just trying to improve your credit rating by using debt consolidation, or by paying off your credit card.
Of course just shopping around when looking for your loans is also a good way to find them more cheaply, and if you’re fortunate to have a good support network you may even want to consider the ‘bank of Mum and Dad’ and sidestep the jargon completely…
Author Byline :
The writer of this post, Nick Dunin is an avid blogger. At http://www.debtconsolidation.com.au he advises people with their financial and debt repayment concerns.
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Category: Debt
