Applying For Loans And Lines Of Credit: How To Prepare
Personal loans and lines of credit can be two popular choices for consumers seeking to borrow money without risking a valuable property, such as a house or an automobile, as collateral. Both have lots in common, but which one is best for you depends on your individual needs. To determine which option is right for you, consider the pros and cons of each. But before moving forward, it’s important to understand just how credit works. Here are some things you should know about loans and lines of credit:
A loan is simply a repayment plan
that involves borrowing a sum of money from a lender. The amount borrowed is called the “loan amount.” The interest rate on this loan is typically determined by the credit rating of the borrower. While loans and lines of credit can help individuals and families increase their credit score, they do not pay off in the same way as traditional forms of financing.
A line of credit
is essentially an agreement between a lender and a borrower. This agreement provides the lender permission to obtain funds on a particular date by depositing funds into a special account. When these funds are used, the borrower can make one single payment each month. It’s important to note that just because a borrower uses a line of credit to fund a specific purpose doesn’t mean he or she will have continuous access to the funds. As long as the lender who gave the loan has the authority to give the funds out, the borrower will be able to get the cash he or she needs.
Both loans and lines of credit come with different fees.
There are fees associated with both types of financing, and these fees can increase the total cost of taking out a loan or credit line. Many borrowers find it useful to calculate the cost of their financing before applying for a loan. In addition to calculating monthly payments and interest rates, it’s important to consider the annual percentage rate (APR). The APR is the annual interest rate, times one hundred; this is the most common way that banks charge borrowers.
If you are looking at either a loan or line of credit
it’s smart to know the terms of repayment. Unlike a personal loan, there aren’t usually any automatic repayment schedules associated with loans and credit cards. Each lender has its own repayment schedule, and you’ll have to make your repayment plan choices for each loan or line of credit offered to you. If you choose to take out a short-term loan or credit card, it’s important to understand the repayment schedule. Typically, you’ll want to make your payments weekly; however, some lenders do require extra payments for longer periods. Be sure you understand the repayment schedule before taking out the financing.
If you are considering a long-term loan or line of credit
it’s smart to understand the interest that will be charged. Interest rates on loans and credit cards are often higher than the rates on personal loans, but there are exceptions. If you choose to obtain a long-term loan or credit card, you can often finance more than one expense with the financing. For instance, you may be able to finance business expenses as well as personal expenses. Your lender will be able to assist you in determining the best financing option for your unique situation.