Banks don't simply offer credit cards to consumers. In fact, there are 3 other types of credit commonly available to consumers: loans, lines of credit, and mortgages. Before applying for any of these 3 types of credit, it is important to know whether you can pay it off. You can determine that by comparing your income against the projected monthly payments. Make sure you choose the options that are right for you.
LOANS
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When you take out a loan, you are receiving a sum of money and are promising to pay it back, along with interest, after a specific period of time.
There are 2 types of loans - secured loans and unsecured loans. Unsecured loans are granted based on your ability to repay the loan. This can be determined from your credit history and personal income. A secured loan is a loan that is secured by collateral, which could be the asset purchased by the loan or other assets you own. This reduces the risk to the bank, as if you are unable to repay the loan, the bank is able to seize the asset and sell it to repay the debt.
In terms of interest, you are generally able to choose from a fixed or variable interest rate. A fixed interest rate doesn't change over the term of the loan while a variable rate does.
There are 2 types of loans - secured loans and unsecured loans. Unsecured loans are granted based on your ability to repay the loan. This can be determined from your credit history and personal income. A secured loan is a loan that is secured by collateral, which could be the asset purchased by the loan or other assets you own. This reduces the risk to the bank, as if you are unable to repay the loan, the bank is able to seize the asset and sell it to repay the debt.
In terms of interest, you are generally able to choose from a fixed or variable interest rate. A fixed interest rate doesn't change over the term of the loan while a variable rate does.
LINES OF CREDIT
A line of credit is an agreement with the bank that allows you to borrow up to a certain amount of money, whenever you want. So, you don't have to apply for a loan each time you're in need of money. Furthermore, you're only required to pay interest if you have drawn down your line of credit.
MORTGAGES
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A mortgage is a loan that is taken out to purchase real estate. It is secured by the real estate being bought, and so if you stop paying the mortgage, the bank is able to foreclose. Generally, it takes many years to pay off a mortgage.
There are numerous types of mortgages. A closed term mortgage is a mortgage where you are unable to prepay, renegotiate its terms (change monthly payments, interest rate, etc.) An open term mortgage is one where you can pay as much as you want, whenever you want within the term. If you wished, you could pay off half the mortgage a month after you took it out. A fixed-rate mortgage is one where the interest rate is fixed for the term of the mortgage. Conversely, a variable-rate mortgage is one where the interest rate may change depending on market conditions. These 4 types of mortgages can be combined, creating closed term fixed-rate mortgages, open term variable-rate mortgages and more.
There are numerous types of mortgages. A closed term mortgage is a mortgage where you are unable to prepay, renegotiate its terms (change monthly payments, interest rate, etc.) An open term mortgage is one where you can pay as much as you want, whenever you want within the term. If you wished, you could pay off half the mortgage a month after you took it out. A fixed-rate mortgage is one where the interest rate is fixed for the term of the mortgage. Conversely, a variable-rate mortgage is one where the interest rate may change depending on market conditions. These 4 types of mortgages can be combined, creating closed term fixed-rate mortgages, open term variable-rate mortgages and more.