Are you planning to purchase a house? Have you perhaps considered investing in a new vehicle? The savings of most individuals aren’t usually large enough to cover such purchases, which leaves them no other option but to take out a loan.
Banks and credit unions offer various types of financing to borrowers after determining their eligibility. Hence, shopping for a loan turns out to be a challenging journey for the majority of individuals.
Nevertheless, there are finance brokers helping people make the best decision. If looking for a finance broker in Brisbane, you should hire an experienced and knowledgeable professional.
Have a look at the four most common types of finance options.
Mortgages
Mortgages are one of the most common types of financing used by individuals, designed to finance home purchases. The cost of homes is much higher than the average income a person makes on an annual basis, which makes home buying impossible. Fortunately, mortgages make this process accessible by dividing the cost out over a longer period.
Furthermore, the offered term length of mortgages is usually fifteen, twenty, or thirty years. Anyhow, fifteen- and twenty-year terms are less preferred by homebuyers due to the high monthly payments. Conversely, mortgages with a term of thirty years allow borrowers to repay the loan in fixed installments on a monthly basis. Borrowers are also required to make a down payment, usually higher than twenty percent of the overall sum.
Personal loans
This type of financing is undoubtedly the most versatile in the lending market, as it doesn’t require borrowers to use the funds for a specific purpose. Hence, personal loans can be taken out for a variety of purposes, such as vacations, home renovations, debt consolidation, relocation, credit building, medical expenses, etc. The terms of these loans differ in accordance with their uses, but the maximum length is ten years.
Many individuals opt for such financing for the purpose of consolidating their existing credit card debt. The interest of credit cards tends to accumulate fast in the event of the unpaid balance. Consequently, personal loans provide a more affordable way for borrowers to pay their debt off.
You can apply for a credit that equals your credit card debt and then use the funds to pay it off. Consequently, you’ll be paying monthly installments on your new personal loan, usually with a lower interest. Visit this website for a definition of credit card debt.
Personal loans can be secured or unsecured. The former has to be secured by collateral, whereas the latter requires no collateral if you happen to default on it. The collateral generally comes in the form of a home or an auto. Given the unsecured variants require no collateral, lenders rely on credit reports and credit scores to determine the eligibility of candidates. Individuals with solid scores are eligible for lower interest rates and better terms.
Nevertheless, it doesn’t necessarily mean that candidates with fair or poor scores won’t be eligible. Even if your credit score isn’t the most favorable, your application will probably be approved. Anyhow, the interest rates won’t be as low as those offered to applicants with better scores and credit history.
Secured personal loans, on the other hand, oblige borrowers to offer some kind of collateral, such as a car. Due to providing an asset to back up your credit, lenders think of the secured variants as less risky. Hence, these come with much lower interest rates. As long as you have no problem pledging collateral and feel confident enough in your ability to pay the borrowed sum back, this type of financing is the perfect way to save on interest.
On the negative side, your inability to pay the sum off within the term will result in a loss of assets. Therefore, you should be cautious of the risk of losing the asset you offered as security, as the bank can eventually seize it. Follow this link, https://www.thebalance.com/what-is-collateral-5089892, to learn how collateral works and to get to know its types.
Auto loans
This form of financing is used for purchasing either a new or used vehicle. Auto loan terms usually range between twenty-four and sixty months. Nevertheless, lenders have started to prolong the terms to as many as seventy-two or eighty-four months. Individuals borrowing funds for purchasing an old vehicle are provided with shorter terms due to the high level of risk.
The value of autos, unlike the value of homes, has a tendency to drop over time. Therefore, lenders consider used vehicles riskier to finance. The auto that’s financed can be used as collateral, which is when lenders must ensure the value of the vehicle is sufficient to provide coverage for the loss.
The value of cars tends to depreciate rapidly, hence imposing large deposits and short terms on borrowers. If you happen to borrow money to purchase a used car, you need to make sure this decision goes in your favor as much as possible. It’s common for borrowers to deal with scenarios when the amount owed is higher than the current worth of the purchased vehicle. In order to avoid such a scenario, make sure to choose a short repayment period and assess the speed at which your auto will depreciate over that period.
Home equity loans
These loans are classified as secured, as borrowers are required to use their homes as collateral. The borrowed sum depends on the equity that applicants have in their homes, referring to the difference between the market value of the house/apartment and the amount you still owe.
For instance, if the market value of your home is $300,000 and the sum you owe is $100,000, your home equity equals $200,000. There’s a limit rule of 85% imposed by lenders, preventing borrowers from borrowing more than this equity percentage. Hence, you’ll be allowed to borrow a maximum of $212,500.
The bottom line
If you have a hard time choosing the right type, hire a finance broker to assist you!
