Types of Loans

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People take out loans for many reasons: to buy a car, to buy a house, to pay for college or to pay for a vacation. The type of loan you get often depends on what you need it for and how much you need to borrow.

There are essentially two types of loans. Secured loans require you to have some type of collateral against which you borrow the money, such as property. Unsecured loans do not require collateral.

Secured Loans

The most common secured loans are car loans and home loans. The advantage of secured loans is that since there is collateral securing the loans, they are often low interest loans and and have longer payback periods than unsecured loans. The disadvantage is that because the loans are secured by collateral, lenders can seize that collateral if you don’t fulfill the loan’s repayment terms. Don’t pay your car loan, and the dealership will have it repossessed. Fail to pay your mortgage, and your home will be foreclosed on.

Other secured loans include loans from investment accounts, such as 401k plans, loans from life insurance policies and loans from a pawn broker.

There are also secured loans that are specific to business lending. For example, businesses may obtain operating loans that are secured by equipment or accounts receivable.

Unsecured Loans

Unsecured loans are loans that are not secured by collateral. This means that the lender is operating on faith that the borrower will repay the debt. Common types of unsecured loans include credit cards, personal loans, payday loans and student loans.

Unsecured loans usually carry much higher interest rates than secured loans. For example, the interest rates on most credit cards are anywhere from 15 to 25 percent, while personal loans carry double-digit interest rates. Some student loans carry lower rates, but that’s usually because they are subsidized by the government.

Other types of unsecured loans are known for high fees. The industry average for fees on a payday loan, also called a cash advance, is $15 per $100 borrowed, which works out to an annual percentage rate of 390 percent.

One advantage of unsecured loans is that they often have more flexible terms than secured loans. Credit cards, for example, allow you use as much or as little of your credit limit as you want and take as long as you want to pay off the debt. Payday loans have repayment periods of weeks, after which you can take out another loan.

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Are you a college student – Find out how to manage money

Filed under: Credit Card Tips, Credit Information

If you are a college student, it is extremely important for you to learn strategies for managing money. This is the age when people tend to spend more and more and as a result they fall into the evil clutches of debt. But, this is the time from when you should become more responsible about money. This will help you even with getting good jobs later. So, if you think that you are already in debt, try out the different DIY or do it yourself debt relief options to free yourself of the financial obligations and better your credit.

Learning money management

Money management is not that tough a job. You will have to start with your behavioral pattern and try to change it so as to lower your expenditures. If you don’t have cash in your hand and if you are just pining to buy a thing, avoid using a credit card to buy that item. This pays and you will be able to give up most of your impulse buys, in general the impulse buys are not the necessary items and you can actually live without those items.

Then formulate a budget and get the detailed analysis on your income and expenditures. The income can be your pocket money to scholarships and also the money you are able to earn through part time jobs or the likes of these.

Expenditures will include all of the college fees, tutorials attended if any and other important and essential expenditures. After you list all of these, you will have to find out if the amount you expend is within your affordability and if you can anyhow lower the expenditures.

This will help you in saving money on your expenditures. In addition to that, you will have to start a savings account so that you can put the money which you are able to save from your expenditures into that savings account. Having a savings account is of utmost importance as it helps you save money and use it in times of emergencies or if any emergency situation never arrives, to save money for future use.

Other than budgeting, lowering your expenditures and thus saving money, you will also have to try and save money on the debt payments. This can be done simply if you make on-time debt payments. You may ask as to why this is important and how this can help you in saving money. This is important because only if you make on-time debt payments, the interest rate on that account won’t rise and thus you will be able to pay off that debt fast enough. In addition to that, your credit will be in a better position and will be in so good a position that you may even be able to better credit offers with low interest rates than usual.

Rather than making only the minimum payments on the accounts, try to make more than minimum payments and that too more than once in a month. This is known as the snowflake method and it helps you in chipping off the large debt amount which had been incurred. This again is important because, creditors tend to raise interest rate if you tend to carry high balance. So, it is better to maintain low balance in mainly credit cards. That can be done if you make more than one payment each month.

Thus, you can see that money management is essential and in addition it is not at all a tough job. The more you avoid it the tougher can it become. So, manage money when in college and stay happy and stress free always

Building Credit After Graduation

Filed under: Credit Information

The period following college graduation can be a large financial transition for recent graduates. Some may be searching for employment while others are contemplating purchasing their first car or renting an apartment. The reality remains that most of these transitions require a history of credit. Building credit is not as difficult as it may seem and there are many small measures young adults can take to establish a positive credit standing.

Opening a checking or savings account may not directly affect building a credit foundation. However, it is a stepping-stone. Most lenders will ask potential borrowers if they have those types of bank accounts on credit applications, National Foundation for Credit Counseling vice president Gail Cunningham told Bankrate.com.

Applying for a secured credit card may help recent graduates build their credit file, reports MSN Money. Cardholders typically put down a deposit in the amount of the credit line. Opening small store accounts, such as a gas or department store card, are other options for establishing credit, according to MSN Money.

Consumers who apply for credit cards should protect their credit by spending no more than 30 percent of their limit and paying the balance in full each month, MSN Money reports.

Borrowers should be wary of applying for too much credit at once, which may suggest to lenders that they are “desperate for credit,” Cunningham told the website. Applying for multiple lines of credit will also raise the number of inquiries on a credit report, which can negatively affect a consumer’s score. Opening one or two small lines of credit will suffice, reports MSN Money.

Young adults who have not had the opportunity to establish a credit history may want to consider asking a parent to co-sign for a credit card or large purchase. Having a co-signer will allow the consumer to secure a loan and build their financial standing. The primary account holder should bear in mind that late or missed payments will negatively affect their co-signer’s report as well as their own.

Lastly, consumers should obtain a copy of their credit report to ensure that all the information listed is accurate. Lenders will use the report to determine eligibility and rates on loans, which will affect a consumer’s finances in the long run. Young adults should get into the habit of monitoring their credit and obtaining a copy of their report once every year.

ABOUT THE AUTHOR:  The author, Krystle Chelsea Chan, is the SEO Specialist at www.creditreport.com

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