We live in a world where we will never be able to get everything we want. Why? Only because we keep wanting things, and about 99% of everyone in the world find that there is always something they need to buy.
Technically speaking, a loan is borrowing. It can be anything from money to items like books, cars, even houses. With borrowing, you need to return. In the case of loans, there is usually a charge called interest.
It is quite rare to get an interest-free loan unless it is a loan from a relative or close friend. If you can get this, consider yourself lucky, and make all efforts to pay back the loan as soon as possible.
The rate of interest you will get charged will vary. In the case of credit card loan, sometimes called cash advances, you usually get charged 3 to 3.5% annually. You can avoid this by always settling your bill completely upon receiving the statement. If not, then the balance will accrue interest, and this will be tagged on to your remaining balance due.
A loan is also temporary. There is no loan that is given with the expectation that payment will take forever. If you do not settle your bill, the balance will keep growing until it reaches an amount that would almost be astronomical.
All loans will come with a contract which should state the terms specifically. You should never just verbally agree to the terms of a loan because this could backfire on you, and you will end up the loser with a he said-she said scenario.
There are also secured and unsecured kinds of loans. The secured loans will have the additional feature of a collateral. This means that should the person with the loan default on his payments, the lender can get his money back in some form or another through the collateral given to him by the person who defaulted.
If you talk about amortized loan, this simply means that you will be required to make regular payments. This can be scheduled annually, bi-annually, although these are rare. Usually the payments are required to be made monthly, quarterly and they are computer based on the principal amount, the interest, taxes, and insurance.
Balloon payments means that the principal amount will be paid on a specific date in one lump sum. The regular payments will only be the interest payments. This used to be more common in the past, unlike today, when the amortized scheme is seen more often.
Loans are pretty easy to apply for, but unlike a few years ago, financial institutions are more conservative in approving for loans. In many cases, you need to have a good credit history prior to quick approval. Of course, if you are pursuing your first loan, approval may take a little longer. What you can do is start with a payday loan or a student loan, and build your credit standing from here.
Quote of the Day:
When you set out to borrow, you often come across terms like unsecured loans, revolving loans, adjustable rate loans, etc. While these terms are more or less self-explanatory, it is still useful to be clear on their exact meanings and what they imply before you finalize a loan contract.
- Prakash Menon
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Conclusion:
If you think you are ready to start considering a loan, make sure to think twice about it, and get a mature opinion from someone you respect and knows you. Having a loan is a big responsibility, and it will take a lot of maturity to see it through properly.
