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Loans

Introduction

Related Articles
Unsecured Loans
Personal Loans
Debt Consolidation Loans
Home Equity Loan
Secured Loans
Lines of Credit
Mobile Home Loans
Mortgage Brokers

Loans Introduction

Financial loans are money lent, typically for a certain amount of time and with interest charged. Financial institutions will require that a borrower fill out a credit application and meet certain qualifications. Based on the borrower’s credit scores and other personal criteria like employment and existing debt, the lender establishes loan amount, interest rate, and length of loan.

Mortgages use the borrower’s home or property as security. The entire amount of the mortgage loan is applied to the purchase of the real property. Interest rates are typically based on a federal index and may be fixed or fluctuate within a pre-established range. Mortgage interest is compounded, and is tax deductible. Balloon payments, larger payments that are due at the end of the payment schedule, are often established in order to keep the regular monthly payments lower.

Home equity loans, also called second mortgages, are also secured by the borrower’s home or property. A home equity line of credit may be accessed many times, while a home equity fixed loan is taken in a single amount. Interest is compounded, usually at adjustable rates. Lengths of home equity loans are typically fifteen to thirty years, with no money drawn out after the first ten to fifteen years. These loans are often used to consolidate other debts or to buy non-real property.

Many financial institutions offer personal loans for the purchase of virtually any product or service. If unsecured, the compound interest rates may be high. Auto loans are somewhat secured by the automobile, but a good credit rating is necessary and may help lower the interest rate. Business loans are more difficult to secure because of a typical absence of sufficient physical collateral, so credit worthiness is important and interest rates may be higher, while loan amounts may be lower. Consolidate student loans allow the refinancing of existing federal student loans into a single loan with a fixed rate, typically lower monthly payments, and incentives like discounts for early payments.

Demand loans are risky in that the lender may call in the loan at any time. The borrower must be able to pay back the entire debt almost at a moment’s notice. Payday loans have typically high interest, small loan amounts, and extremely short payback periods.