Credits have now tightly integrated into our lives. Live in debt has become a fashionable habit for a modern man. If you need to buy a new car or repair an apartment but lack $1000 when it is necessary to finish the work as soon as possible, a need arises to take out a loan. But how to do this in the best possible way? There are many possibilities to get money, however, there are two most popular variants: bank credit or a small-dollar credit online. Before taking a loan, it is necessary to consider the pros and cons of each opportunity to get the necessary amount of money.
Bank Credit: Is the Less Interest Rate Should Influence Your Decision?
Bank credit is still used by many people because it is the traditional way to get the necessary amount of money. However, there are both pros and cons. First of all, this is not the best way to get money today as you will have to spend time on paperwork. You are required to gather all necessary documents in order the bank manager can decide whether you are a reliable borrower or not. The major disadvantage of getting bank credits is the necessity to have if not perfect than at least good credit score, which can’t be found often nowadays.
One of the most common types of credit is a consumer loan without guarantors and certificates, which every person would like to get. However, not all clients have an ideal credit history, which is the fundamental document in this program. Untimely payment is not always due to a person’s fault. This may be your employer’s fault, who delayed wages, or unforeseen circumstances that prevented from the payment on time. In this case, you should contact the consulting companies that provide assistance in obtaining a loan. Specialists will help you choose the bank, type of loan, favorable interest rate and loan repayment period. Each request is studied by specialists individually.
Consulting services will help you save time and precious nerves and give you information about the credit programs of any bank. In view of the fact that the financial market does not stop its constant development, interest rates on loans also tend to change. Some clients who borrowed a few years ago may note that today the same loan could be issued in another bank on more favorable terms. Any solvent person does not want to pay extra money, so in this case, you can use the refinance loan option. Thus, the client takes a new loan, with the help of which repays the previous one. This service is especially advantageous for those who have several loans in various banks. In order to significantly save your costs, you can collect all your debts in one loan and repay it in one bank institution.
Don’t Be Trapped by the Attractive Bank Offers
Now, almost at every corner, you can see an advertising proposal of banks on the availability and ease of issuing a loan. Despite the tempting offer to issue a loan and immediately acquire the desired goods or services, the decision to obtain a loan from the bank should be approached with all responsibility and care. Often, credit becomes a real problem, and borrowers are forced to make ends meet, only to pay off the next installments and prevent delinquency. Why is this happening?
After all, it would seem that borrowers got acquainted with the terms of the loan agreement and knew what obligations they took on themselves. Practice shows that in some cases borrowers, even after acquainting themselves with the amount of the monthly payment, are not ready to pay the remaining amount by the end of the period. Most often this situation develops with so-called annuity payments. Let’s look at what annuity payments are and what can be their inconvenience to the borrower?
By definition, annuity payments are equal monthly payments on a loan, calculated according to the annuity formula (French annuite from Latin – annual, annual). The essence of the annuity repayment schedule is that in the first year (or years, depending on the term of the loan), the principal portion of the monthly payment is interest on the loan agreement, and the amount of the principal debt (the loan body) is repaid in a smaller amount or not is repaid in general and is payable in the last month of servicing the loan debt.
Thus, the bank insures itself against loss of interest in case of default by the borrower of its obligations, as well as in case of early repayment of the loan. In addition, the bank is more profitable such payments in terms of income. Consider for comparison examples of calculating the amount of debt on the basis of annuity and differentiated payment.
Suppose, you took a loan in the amount of $1000 for 2 years at 15% per annum with monthly payments on the last day of the month. In the case of annuity payments throughout the term of debt servicing (60 months), you will pay the same amount, while the composition of payments will change. For the entire period of the loan, your overpayment on interest will be huge, especially if to take into account one-time and monthly commissions, and insurance.
In case of differentiated payments on the same terms and conditions of the loan agreement, the first payment will include the principal amount, and the interest. With further loan servicing, the amount of debt on the principal debt will decrease, and consequently, interest payments will also decrease. For the entire period of the loan, your overpayment on interest will be less compared to the previous one (without taking into account one-time, monthly commissions, and insurance).
Some borrowers, not delving into the essence of annuity payments, are then surprised that by the end of the loan repayment term there is a fairly large amount – the balance of the debt on the principal debt (this is in the case of monthly repayment of debt only on interest). Therefore, carefully study the payment schedule for the loan and pay attention to the amount of payment in the last month of loan servicing. If you still decide to take out a loan with annuity payments, then it is best to plan your expenses in advance for the entire loan repayment period and gradually accumulate a reserve fund to pay off the remaining part of the loan. Only competent planning of expenses will help you to avoid breach of contractual obligations to the bank and possible negative consequences.
Short-Term Loan Online and Its Advantages
This is a relatively new product, which has become very popular thanks to the convenient conditions offered by payday lenders online. Many people are wondering whether it is necessary to go to the bank if there is an urgent emergency requiring money now. This dilemma is especially actual in those cases when the amount that is not enough is very small while time is very short. In such situations, the most optimal and correct decision will be to apply for an online loan. This not only saves time, but also opens up many other possibilities for the user.
First of all, it is worth noting the ease of use this type of financial assistance. Lending online is as quick and simple as possible. In order to take a payday loan, you do not even have to leave the house. It’s enough just to go to the right site, fill out the form there and after a few seconds the necessary amount will already be on your banking account. As a rule, the interface for credit services is understandable even for those users who have little experience in working with a computer.
Online services allow you not to waste time visiting banking organizations, searching for the most beneficial offer and tedious idle in the queues. To make an online loan, you need to allocate only fifteen minutes of your time, because the entire system is fully automatic. There is no need to adjust to the work schedule of a financial institution. After all, you can make a loan online in any place and at any time (even at night and on weekends). The only condition in this case is the availability of Internet access.
Among the main advantages of online lending loyalty can also be mentioned. In the presence of a good credit history, all regular customers of the service are offered various benefits and various discounts. And as for the operation of the system, it is completely transparent. So, on the web resource there is a special loan calculator, which immediately shows the accrued interest and the full amount that will need to be paid on the due date. And, finally, these are small amounts. Since banks are primarily focused on providing large loans, online services work with small loans. You can take even the most minimal amount starting from $100.
Delay in Credit Repayment: What to Be Afraid Of?
Delay in payment or non-payment of a loan threatens with penalties. They can differ substantially in each bank that issues the loan. In one place you will be charged for each day of delay a certain fixed amount of a fine, sometimes quite small, in another one- the day of delay may cost 1-3% of the loan amount. What threatens the borrower here most? In the contracts, some banks prescribe claims, according to which those who have delayed the next payment are obliged to repay the entire loan ahead of schedule.
If the debt is not repaid within three months, the bank starts to operate much more rigidly. These sanctions depend on the conditions on which the loan was taken, with or without a pledge. In the first case, the responsibility for the unpaid loan can be considered in court, i.e., the creditor is suing the court demanding the sale of collateral. Keep in mind that in this case, the bank, having reimbursed its costs with the issuance and servicing of the loan, must return the borrower the remaining amount from the sale of the property.
How Not to Become a Non-Payer?
Not every person, getting into debt, is able to clearly weigh their capabilities and assess their needs. But how can you pacify your consumer appetite and not get into debt bondage? In order not to become malicious non-payers and not be dependent on the bank, you need to learn to distinguish the really worthwhile loans from unnecessary and burdensome. There are quite clear limits, allowing to divide credits into useful and harmful:
- Useful loans are loans that allow you to increase your income in the future. For example, a loan to pay for education will get a promotion. A loan for the purchase of a car necessary for daily work, especially if you need to travel a lot on official business, will increase your income. Also, useful loans are those used for medical care (treatment) or improvement of living conditions.
- Bad loans are loans that confidently lead to debt bondage, because your regular income is less than the amount of monthly payments. This is the purchase of super-fashion goods or payment for services, without which you could easily manage. For example, the acquisition of a heaped computer, which you are most likely to use only for reading news on the Internet or for communicating via Skype with friends. The same harmful can be loans that are not in the currency in which you receive a salary. The exchange rate may chance and you will lose more.
You need to adhere to some rules if don’t want to face a need to communicate with collector’s agency:
- Do not apply for a loan just because you were offered to get it by the bank or any other financial organization. Only you should be the initiator of the registration of the loan.
- Do not take consumer loans without consumer needs. If you cannot save money to buy an expensive washing machine or TV, think – maybe you should choose a model that is simpler and cheaper.
- Do not make credit cards if you are inclined to impulsive, rash shopping. With non-cash money it’s always easier to part than with cash, which is in your wallet.
If you need money now, it is better to consider the small amount for a couple of weeks or so. Payday lenders will not require any documents providing a helping hand the same day you need it. It is better to apply for small-dollar loans than to take large bank credits as they aren’t as safe as they may seem. However, each situation is individual and it is up to you to decide, which way of getting money is the best for you at the moment. You will be able to make the right choice having a clear picture of all nuances. If you want to learn more about other ways of borrowing money, read here.