Apr 16, 2007

Finances

Loans can be confusing, and risky, especially when your home or credit is at stake. When a loan is necessary, it may be difficult to chose between the different types of loans, like Secured Loan, which are typically lower interest loans with something put up for collateral like a home or property. These types of loans include a mortgage, auto loan, or a home equity line of credit.

Another type of loan is a personal loan, which are typically higher interest, shorter repayment terms, and usually have nothing used for collateral. These type of loans are typically short term, higher interest, and smaller in amount. These type of loans have no collateral and include loans such as credit cards, signature loans and payday loans.

A third type of loan is a debt consolidation loan, this is a loan with the purpose of paying off other high interest loans. The type of consolidation loan I am most familiar with is a home equity loan, which frees up the equity in your home to use for the purpose of paying off higher interest loans.

Any time you are dealing with credit, there are risks, from overextending yourself and getting into "debt up to your eyeballs" so to say, to overpaying for an item after calculating interest, to using the value of your home and then later not being able to sell your home for profit, or even having negative equity. There is also the temptation of running up the freshly paid off credit cards once you have consolidated them into a new loan. This is why one should never borrow money lightly... remember, what is one dollar today, may be $5 tomorrow.

No comments: