In basic terms, a loan is a borrowing of cash by one or more people, companies, institutions, or other entities and then to repay it to others, companies, etc. The borrower is then generally liable only to pay back the principal amount borrowed and the interest charged on that loan until it is paid off. There are many different types of loans available to consumers. They include secured loans, unsecured loans, payday loans, home equity loans, car loans, student loans, home equity lines of credit (also called HELOCs) and personal loans.
Secured loans typically involve securing a lien against the property you borrow in order to secure the loan. This means that if you do not repay the loan, your lender can take possession of your property and sell it. In return, they forgive you any early payment fees. The advantages include the fact that your credit may be damaged by late payments and you will be required to forfeit any monies you borrowed but are yet to repay.
Unsecured loans, on the other hand, do not result in collateral or an insurance policy for the lender. Therefore, there is no need to secure your loan with something like your home or automobile. You can borrow any amount that you feel comfortable with. In addition, you do not have to make any payments until the full amount has been repaid. However, because of the greater risk involved, these types of loans tend to come with a higher monthly payment amount.
If you are considering this type of loan, there are several factors that you should consider. First of all, you should consider your interest rate. The prime mop rate for most loans is 7%. Be aware that different banks and lending institutions may offer different primary residence loan interest rates.
When applying for these types of loans, keep in mind that the term of repayment varies from lender to lender. If you have good credit, then you should be able to qualify for an introductory interest rate of as low as 0.50% or even lower. Unfortunately, this is not the case for everyone. Most borrowers who apply and are approved for these types of loans are required to make the full payment on the date of the loan termination. This often occurs after the borrower’s second anniversary of paying off the loan. Borrowers who have poor credit may not get this benefit.
Another factor you should take into consideration is the interest rate and any penalties that may be assessed against you. Some lenders charge early payment fees, and others include additional charges. Be sure to read the fine print very carefully before signing the loan documents. These types of loans typically do not have provisions for accrued interest. Therefore, if you are not able to pay off your debt within the specified time frame, you may have increased debt costs.
Many people choose to take these loans simply to relieve financial stress and immediate cash needs. However, these types of loans also can lead to serious consequences if you do not make payments when required. The penalties that are assessed against borrowers for late or missed loan payments are typically equal to the face value of the outstanding balance plus three percent. In addition, borrowers who become delinquent in their loan payments are subject to a range of legal actions, up to and including foreclosure. For this reason, you must promptly make all loan payments.
If you do not have enough money to make the full minimum monthly payments, then you should consider getting a cash out refinance loan. A cash out refinance is a great option for borrowers who have collateral (e.g., home equity). The cash out loan allows you to take out a loan for more than the balance of the existing loan. You would then return the loaned amount (the lump sum) plus your original loan balance. This lump sum repayment can help you reduce the interest rate you pay on the new loan as well as substantially reduce your payments until your balance is again at an affordable level.