A
secured loan
is a loan in which the borrower pledges
some asset (e.g. a car or property) as collateral
A
subsidized loan is a loan
that will not gain interest before you begin to pay it. It is known to be used
at multiple colleges.
A
mortgage loan is a very common type of debt instrument, used by many
individuals to purchase housing. In this arrangement, the money is used to purchase the
property. The financial institution, however, is given security — a lien on the title to the house — until
the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to
repossess the house and sell it, to recover sums owing to it.
In
some instances, a loan taken out to purchase a new or used car may be secured
by the car, in much the same way as a mortgage is secured by housing. The
duration of the loan period is considerably shorter — often corresponding to
the useful life of the car. There are two types of auto loans, direct and
indirect. A direct auto loan is where a bank gives the loan directly to a
consumer. An indirect auto loan is where a car dealership acts as an
intermediary between the bank or financial institution and the consumer.
A
type of loan especially used in limited partnership agreements is the recourse
note.
A
stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender
against loss, using options or other hedging
strategies to reduce lender risk.[citation needed]
A
pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit
and awardable amount in a lawsuit case. Only certain types of lawsuit cases are
eligible for a pre-settlement loan.[citation needed] This is considered a secured non-recourse debt because if
the case reaches a verdict in favor of the defendant the loan is forgiven.
Unsecured
loans are monetary loans that are not secured against the borrower's assets.
These may be available from financial institutions under many different guises
or marketing packages:
- credit card debt
- personal loans
- bank overdrafts
- credit facilities or lines of
credit
- corporate bonds (may be secured or unsecured)
The
interest rates applicable to these different forms may vary depending on
the lender and the borrower. These may or may not be regulated by law. In the
United Kingdom, when applied to individuals, these may come under the Consumer
Credit Act 1974.
Interest
rates on unsecured loans are nearly always higher than for secured loans,
because an unsecured lender's options for recourse against the borrower in the
event of default are severely limited. An unsecured lender must sue the
borrower, obtain a money judgment for breach of contract, and then pursue
execution of the judgment against the borrower's unencumbered assets (that is,
the ones not already pledged to secured lenders). In insolvency proceedings,
secured lenders traditionally have priority over unsecured lenders when a court
divides up the borrower's assets. Thus, a higher interest rate reflects the
additional risk that in the event of insolvency, the debt may be uncollectible.
editDemand
Demand
loans are short term loans (typically no more than 180 days)[1]
that are atypical in that they do not have fixed dates for repayment and carry
a floating interest rate which varies according to the prime rate. They can be
"called" for repayment by the lending institution at any time. Demand
loans may be unsecured or secured.
Key
to a Great Auto Loan #1: Manage Your Credit
One
of the first things you should do before applying for an auto loan is review
your credit. All US consumers are entitled to a free credit report, so use this resource. Find out if there’s anything you
need to fix. Any errors or bad habits could affect your auto loan rate
Know
How Much You Can Spend
Diligent budgeters already know
this, but I don’t run into very many diligent budgeters. Track your budget any
way you like (Microsoft Money is a good tool or build your own system), and then find out
how much your payments might be with the car payment calculator.
Key
to a Great Auto Loan #3: Look at the Big Picture
The terms of your auto loan will
determine how much you pay now and how much the auto loan costs overall.
Remember that a low cost now may not mean low total costs for you in the big
picture.
For example, most borrowers choose a
low down payment because it’s easy to manage today. However, that choice
increases the total cost of your auto loan and usually leaves you ‘upside-down’
(meaning you owe more on the vehicle than it’s worth) for years to come.
Key
to a Great Auto Loan #4: Consider Insurance
When you ask various lenders what
they’ll offer you, you may find that you need insurance to get the best auto
loans. I’m referring to disability insurance and life insurance at this point.
The lender is concerned that something could happen to you and you wouldn’t be
able to pay them back.
Having insurance might not be a
requirement, however you should know all the details if you already are
insured.
Key
to a Great Auto Loan #5: Shop Around
This is simple but it is often
overlooked. The most important point here is that you don’t have to get your
auto loan from the dealership. Check with a credit union,
bank, online lender, or P2P lending source. In most cases your car dealer won’t
have the best auto loan. By consulting with an alternate lender before stepping
onto the lot, you’ll be armed with knowledge of what’s fair -- and you may have
some bargaining power.
Key
to a Great Auto Loan #6: Avoid Prepayment Penalties
Things change in life and
flexibility is important. Your auto loan should also be flexible. Find a lender
that will allow you to make extra payments or pay off the loan entirely without
any penalties. It’s important to read the fine print – some penalties aren’t
called “penalties”.
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