With the number of people availing loans and opting for credit cards increasing at an exponential rate, it is important to understand which credit card or type of long-term loan is suitable for you depending upon the reason for taking a credit line and other attributes related to your credit history and income figures. A loan can simply be borrowing money from friends and family to complex schemes like mortgage, housing loans, etc.
At first a brief introduction on the type of credits available which will facilitate a better understanding of the intricate mechanisms in use for different schemes. Credit can be classified into two broad categories, namely Open-End Credit and Closed-End Credit.
Open-End credit also called revolving credit, is like a prepaid plan with a specified upper limit on transactions. One can exhaust the limit by making repeated transactions using the credit line. The minimum amount is to be repaid on a monthly basis subject to interest rates that vary with the product and the banking institution. Credit cards and home equity loans are examples of Open-End credit option. The credit limit and the rate of interest of a credit card depending on the credit history of the consumer along with the customized features of the credit card.
On the other hand, Closed-End credit option is money lent for a specific amount of on at a fixed rate of interest. Payment is made at regular intervals of time. The rate of interest depends on the lender and the credit score of the consumer. The lending firm can choose to take over the property of the consumer in case of being a repeated defaulter.
For Open-End credit options, there are a few things that need to be considered.
- It is important to understand your spending habits and financial requirements before opting for a particular credit card. It is a must to have a good understanding of your credit score and credit history.
- It is often a mistake of choosing a card that offers tons of features and creative packaging as it might not suit your financial requirements and put a strain on your financial budget while repaying on unforeseen higher rates of interests.
- A decent research on the card of your choice on the internet is a good move. Comparing different parameters with different cards on the interactive websites is a great way to get new insights into the features of the card.
- A non-hyped feature offered by a lot of credit cards is the warranty on the products bought with the card. Such credit cards promise replacement or refund within 60 to 90 days considering you hold on to those receipts.
- Credit cards that focus on benefiting people who travel a lot inclusive of luggage insurance. Discounts on flight tickets and access to premium lounges at airports are one of the few features offered by these genres of cards.
These are the fundamental criterion that cannot be overlooked while getting a credit card. Insight into the type of loans is a prerequisite for the better understanding of its mechanisms. Types of loans are purely based on the purpose it serves.
- Student loans are granted to college students which more or less covers the cost of higher education. Students loans are further divided into two type called federal student loans and private student loans. The former being better in terms of low rates of interest with moderately lenient repayment schedules.
- A mortgage is a loan funded by the bank for the purpose of purchasing a property or apartment when the consumer cannot make a complete down payment at once. Payment is made on a monthly basis and they have the lowest interest rates compared to the other types of loans.
- For purchasing vehicles, banks give out auto loans depending on your credit score and history. It is better to take such loans from banks than the vehicle dealership as they impose higher rates of interest.
- A loan required for a reason that may not be shared is called a personal loan. The amount sanctioned will again depend on the credit history. www.westernshamrock.com can help you find the installment loan you need.
- There is also provision for loans meant for Veterans. The Department of Veterans Affairs has come up with a lending scheme for veterans and their dependents. Instead of the money coming directly from the administration, the VA vouches for the veteran who requires a loan facilitating the sanction over high loan amounts with reduced rates of interest.
As explained by Forbes, it is important for the consumer to patiently go through the terms and conditions of a credit card or a personal loan. Utilizing the features and comparing attributes of different products available to suit your financial needs is a good strategy before you get a credit card. When it comes to taking Closed-End loans, it is very important to consider if any belongings are attached to the terms and conditions of the loan. Gaining knowledge on billing cycle and repayment terms are equally important. The repercussions of missing a payment are also to be understood in order to avoid an unwanted surprise.