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A Few Tips To Better Understanding Loans

By //  by guest

[The following is a guest post explaining the various terms used concerning loans, so that you can make a more informed decision when borrowing money.]

Deciding that you need to apply for a loan of any sort can come at a traumatic and hard time for anyone. And yet once you have decided to take that step you are confronted with a wall of buzz words and catch phrases that simply don’t mean anything to you.

Follow this plain speaking guide below to understand for certain what type of loan you might require.

Loan Sign

Unsecured Vs Secured 

Loans fall into two categories here and are always one or the other. A secured loan is one that is secured against something that you already own. For example you might take out a loan that is secured on your car. This means that if you default on payments the loan company may seek to claim ownership of your vehicle instead to make up for the missed payments.

An unsecured loan is one that is not tied to any assets, these tend to be short term and for smaller amounts than secured loans.

Short Term Vs Long Term 

Again loans are always one of these two categories, either short or long term. This are relatively self explanatory expressions with short term loans being repaid over a much shorter time frame and long term loans being held over a longer time. Short term loans tend to be for smaller amounts such as an overstretched month or small purchase.

Long term loans tend to be larger and for one of purchases of a substantial nature, the most common of course being a mortgage which is a long term loan to buy a house.

Guarantor Loans

Traditionally those people with bad credit or low wages have not been able to take out loans. However, it is now possible for these (and others) to get a guarantor loan which is a loan that another person guarantees will get paid.

In essence this means that if you default on the loan then they become liable for the repayment.

Open Ended Vs Close Ended

A closed end loan is simply one that as you pay back the debt decreases but it gives you no available credit for re-borrowing. An open ended loan is one that as you pay back money you gain credit which allows you to re-borrow again and again up to the total you originally borrowed.

This means that your debt can go both up and down.

So now you’ve got the basics, hopefully you feel a bit more confident about finding out your next step.

photo credit: freedigitalphotos.net

Filed Under: Loans Tagged With: borrowing, credit, lending, Loans, Personal Finance

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