Ever since ancient times, people have practiced the idea of trade and commerce; they pay for something they wanted to receive. From silks and jewels to gold and silver, people have then established the idea of currency as the main material for trading, making it the primal medium for society’s survival. Due to that, people have come up with the idea of loans, lending money to someone incurring debt and are liable to pay an additional interest.
Originated in Rome and Ancient Greece, this system was primarily used by the pawnbrokers. These pawnbrokers would collect collaterals to the borrowers to reduce the risk of the lenders. Yet, as the development of technology emerges in, governments from each nation have formed organizations to tracked and monitored these transactions; with this, the country’s money would be regulated appropriately.
With the evolution of the digital era, programmers have created applications concerning the system of loans. Some banks and organizations even invest in this method to cope up with the demands of society and, at the same time, widen their range of business. Surveys also have proven that the majority of the loan consumers prefer to transact online; these percentage even increased with the development of gadgets, specifically mobile phones, through time.
Loans come in different types and purposes. They also differ accordingly to the regulations administered by the banks and other financial institutions. So if you are planning to lend some money, then it is better to have some ideas first before concluding the transaction. And to help you with that, here are some of the things you should consider before getting a loan:
Understanding the different Types of Loans
As being said, there are various types of loans: personal, business, student, mortgages, equity, and auto loans. The most common ones, the personal and business loans, deal with secured, unsecured, term, short-term, equipment financing, lines of credit, and small business administration loans. To differentiate the two, personal loans focus on the secured and the unsecured loans, while the rest of the mentioned categories focus on the business loans.
A secured loan is a type where the borrower pledges personal properties as collateral, which then results in secured debt. An unsecured loan, on the other hand, is issued only because of the credit-worthiness of the borrower.
For the term loans, they are issued depending on the period the borrower was set to pay. This is also similar to the short-term loans, only that, the latter loan is taken for less than a year. Loans granted for purchasing equipment is the equipment financing loan and loans with the specified amount that needs to be paid immediately are the lines of credit. Lastly, the loans offered by financial institutions and banks are the small business administration loans; the system of the transaction for this type differs depending on the rules administered by the said organizations.
One of the most important factors you should consider before getting a loan is your current financial situation. Having an idea of whether you are capable of dealing with the transaction financially must be greatly considered in order not to end up losing more properties or having more debt.
The amount of interest rate also plays a big role in the totality of the loan you’ll be compensating back. Thus, paying attention to it is highly recommended to come up with better conclusions. These rates also differ on what institution you’ll be working with, so be mindful of the fees they’ll be including. Although fees don’t add up to the interest rates, they’ll surely be included and affect your monthly payments. So pay more attention when it comes to choosing a lender organization.
Loan terms depend on the type of loan and the amount of money you’ll be borrowing; the bigger it is, the longer the time you’ll be paying it. So, before deciding to get a loan, plan out on how much money you’ll truly need. Try to solve whether it fits in with your financial situation. You could also look for some alternatives such as borrowing money from a family or friend to lessen the amount you’ll be returning or try to save up first if you’ll be using the money, not for an emergency.
Loan terms could take up to 30 years, depending on the percentage you pay monthly. For such, if you happen to borrow a huge amount and decided to lengthen the period of payment, then your interest rate would range between 1 to 2 percent. In addition to that, having to pay a small value of monthly amortization could also be a big factor to lengthen your loan term.
Money has become the very foundation of today’s society. From the food we eat to the things we need to survive, money is always involved. And because of that, its importance has become no level of just a mere thing for the common through time. People would work hours to increase the number in their bank accounts and even lend to fund some emergencies. Personal and business loans emerged as people categorized the uses of money. Yet, with proper planning and budgeting, there would be fewer occurrences of people having to borrow money. Prioritizing the things we need is also a great method to avoid being in debt.