In order to understand all the nuances and subtleties of loans, it is first necessary to define its concept, forms and types. In the Brockhaus and Efron dictionary, credit is defined as «the trust enjoyed by that person, society or state in respect of property» and the second definition is “the relation arising from a transaction, called a credit, whereby one party transfers the other to the ownership of any interchangeable values (usually, money) with the obligation to return it after a while with an additional reward of the creditor (interest).
In modern interpretation, a loan is considered to be social relations that arise between subjects of economic relations on terms of repayment and reimbursement. The key words here are “recurrence” and “reimbursement”. That is, you need to return both the loan itself and the interest for using it (even the minimum or commission).
Learn why there are no absolutely free (interest-free) loans. Well, firstly, it is unprofitable for banks to “just” distribute money. Secondly, the real value of any loan consists of an interest rate, various commissions (which, incidentally, are easily levied today by banks), insurance and other bank charges. So, even if your interest on the loan is zero, it does not mean that you got it for free and you will not have to overpay anything extra.
All Types of Loans You Can Apply for
Here is the list of all existing types of loans, which differ with the purpose of getting money as well as the requirements for getting each of them. Check types of loans you can choose from depending on what you need to get money for.
- Consumer credit is a loan for the purchase of certain goods and services, which, as a rule, have a value exceeding the real financial capacity of the borrower at a particular time. Such a loan is used by those who buy furniture, household appliances, and so on.
- Target loan is a loan for the implementation of any purpose of the borrower (usually rest, expensive treatment, education). In this case, banks usually transfer funds not to the account of the borrower, but to the account of the organization that provides this or that service on the basis of a contractual relationship with the borrower.
- Car loan – a loan for the purchase of new or used cars, issued for a period of 1 year to 5 years.
- Mortgage loan – a loan for the purchase of housing, which is pledged to the bank until the borrower fully repays its debt (in some cases, debtors may even lose their housing). The loan is issued for a period of 10 to 30 years.
- A loan for education – a special loan for payment of higher education or any training courses, usually having lower interest rates.
- Tourist loan – a special loan for a tourist trip, provided by banks or travel agencies. This type of loan is very common now.
- A loan for pensioners is a credit granted to pensioners on special, as a rule, preferential terms.
- Commercial credit is a loan with a deferred payment, which the seller of the goods provides the buyer.
- Bank loan is a loan received by the borrower on terms of repayment, payment, for a term and strictly stipulated purposes on bail or other guarantees. The forms of this type of loan are leasing, factoring and forfeiting.
- State loan – state loans from the population of their country and foreign countries for the purpose of financing government expenditures or covering the state budget deficit.
- International credit – loans provided by banks of one country to borrowers of another country.
- Lombard credit is a short-term financial loan secured by easy-to-move movable property.
- A credit card is a personal plastic payment instrument issued by a bank and has a certain credit limit of money (which banks are constantly increasing) available to the borrower for payment of goods and services or withdrawing cash.
- A loan for small and medium-sized businesses is a financial loan issued by banks to open or expand a business. To make a positive decision on the loan is influenced competently drawn up business plan.
What Kind of Forms Can Loans Have?
You should check the forms of loans before you get started with the application procedure.
- Commodity – a form that involves the transfer of a particular thing for temporary use. This form existed before the appearance of commodity-money relations between people. In the modern world, this form is realized in installments, property leasing, equipment leasing, commodity loans and so on.
- Monetary – a form that involves the transfer of a certain amount of money for temporary use. This form prevails in the current economic conditions.
- Mixed – a form that involves the provision of credit goods, and the return of the loan money, and vice versa (often used in international settlements).
What Are the Pros and Cons of Getting a Loan?
The main advantage of getting any type of a loan is a great opportunity to get a product or service you need, to pay for the urgent medical help, or an educational course, without waiting for the salary or other type of income. However, this is the key and the only advantage of getting money from lenders.
Among the possible cons, one may outline the following points:
- Time-consuming paperwork and excessive fuss when applying for a loan (especially if the banks require a guarantor or a pledge from you).
- High interest rates and additional payments on the loan.
- If you often use loans, then over time, loans cause dependence, similar to alcohol or drugs.
- It may happen that you lose a steady source of income and cannot temporarily pay on the loan.
- The threat of a meeting the collectors and losing something of value.
These are standard cons, which refer to almost all types of loans, except the payday loan online, the process of getting which takes a couple of minutes. So, we have in detail considered the essence and types of loans, their pros and cons. But still it should be noted that, despite the significant disadvantages and risks that the borrowers bear, there is no need to avoid loans. After all, there are situations when loans cannot be dispensed with, moreover, sometimes they can bring even profits.
For example, one should not neglect a loan for urgent expensive medical treatment, education, housing purchase, and also for the purpose of economy (if the loan cuts costs or brings in new revenues: for example, you can buy a washing machine on credit and arrange a mini laundry at home washing not only your own but also clothes of other people for money.
How to Choose a Loan?
If you still decide to take out a loan, first clearly define the purpose of borrowed funds and, in accordance with this, choose for yourself the most optimal type of loan. For example, if you want to buy household appliances, contact the shops that provide credit on the spot or goods in installments. At the same time, remember that if you are offered an interest-free loan, think several times before agreeing to it. After all, sometimes such loans due to various additional commissions and fees can reach sky-high payments that ordinary consumer loans have not even dreamed of.
If you are planning to buy a car or buy a home, then choose a car loan or a mortgage, respectively. Since real estate for consumer loans will cost you much more than a mortgage loan. In case you need an amount of money up to $1000, then a payday loan online will be the best and the fastest solution because it can be got immediately. Take into account that it refers to the short-term loans and must be paid back within a couple of weeks.
What to Think Over Before Taking a Loan?
Think about the reality of paying a monthly loan payment. Tip: to avoid making a mistake with the calculations, note that monthly payments should not exceed 40% of your income. Reserve a reserve fund, which usually amounts to 3-6 monthly subsistence minimums, kept at home or in a bank. This is necessary in order that in the event of an unforeseen situation (dismissal from work, worsening of material conditions, etc.), you could react to it painlessly and not stop even the most-minimum payments on the loan.
Never apply for more than you need. That is, if you need, for example, $120 , then take $120, and not 150-160. Otherwise, you will overpay much more than planned. Determine the optimal term for the loan. The principle: the longer you pay the loan, the lower the monthly payment for it, but the greater the ultimate overpayment. Therefore, in order to competently calculate the most comfortable for yourself loan repayment period, be guided by the “20-30% rule”. That is, allocate from your income 20-30%, which you will pay monthly, and calculate for how long you could finally pay for the loan.
Comparing credit programs in different banks, pay attention to the following parameters:
- The amount of the down payment that you will have to pay to get a loan.
- One-time bank commission charged for the loan.
- The monthly commission charged in addition to fixed interest.
- Loan repayment scheme (equal monthly payments (annuity) or monthly reduction of the amount of payments (differentiated)).
Any bank fees in excess of the loan interest rate are considered illegal and easily repaid! But with the help of the so-called “effective interest rate”, credit programs are better not to compare. The total loan cost is the amount that you actually pay to the bank for using the loan. That is, it includes the annual interest rate, various bank charges and fees, insurance (which can be returned), and so on. The central bank obliged all creditors to inform the client of this very “full cost of credit” before issuing a loan. However, in practice this requirement is not fully realized. There are several reasons for this.
First, banks cannot always calculate in advance the real “effective interest rate” for each particular borrower, because there are parameters (for example, insurance, the amount of which is determined for each client individually based on his data on the field, age, health status) not subject to the creditor. Secondly, the “total cost of credit” is not always calculated by the same formula.
Thirdly, banks tend to artificially lower the amount of payments. To do this, they expect, for example, insurance is not for the entire period of the loan, but only for a year. Therefore, comparing the “total cost of credit” with different banks is meaningless.
Thus, you have to consider the final approximate amount for a particular loan by yourself. In addition, for calculating you can use credit calculators, which will calculate the full cost of the loan right up to inflation. Most importantly, having decided on the loan that you will make out, be sure to disassemble the loan agreement literally on the points. And even if you were already ready to take this loan, but suddenly you did not really like something in the contract, boldly refuse such a deal. Remember: until you have signed a contract with the bank, you do not owe it nothing and do not have to! Therefore, return the unsigned document to the creditor and go quietly with a calm soul in search of a new, more profitable loan. Which one? Why not a payday loan?
Payday Loan Online: The Best Loan for Short-Term Financial Problems
We have considered the main pros and cons of bank loans and other loan types but what about a payday loan? It has the same benefit providing you with the opportunity to solve problems without waiting for the salary. Compared to other loans, it is fast and its application doesn’t require a lot of paperwork-everything is online. No need to go anywhere as you can get the loan from the comfort of your home. Make sure that you need money now and even the high percentage rate isn’t the big problem for you financial situation and apply for the loan sharing the basic information. There are more pros than cons when applying for instant loans from the payday lenders online. Take the one and check this on your own!
You can get the necessary amount of money, regardless of your age if you are older than 18, working or having no official income. There are lenders who have stricter requirements but most of lenders are ready to help everyone in need giving from $100 up to $1000 to every borrower who can meet the simple basic requirements. If you need the little amount of money for a week or two, a payday advance will become your wisest solution because it will help to save much time and will provide you with the chance to avoid the hassle getting money from the bank.
Remember about your purpose when choosing the loan type you need and make sure that it is the best option for your current situation.