Personal Finance Part I – Types of Loans


By pooling the funds of savers, money could be lent at reasonable rates to those who needed to borrow. Consumer loans refers to people borrowing money to make a wide range of secured and unsecured loans to consumers for consumable items from lending institution. Consumer loan does not include mortgage loans, that is typically used only for home purchases. In this article, we will discuss types of consumer loans.

1. Personal Line of Credit
a) Banks, trust companies and credit unions may offer their creditworthy customers a personal line of credit as a convenient substitute for personal loans.
b) A personal line of credit is a flexible way to use credit, because the financial institution makes funds available to a customer up to certain limit.
c) There are interest charges on a personal line of credit; the interest rate is prime rate + 1% and adjusted monthly.

2) Overdraft Protection
Overdraft protection, available at banks, trust companies, and credit unions, allows deposit accounts to become overdrawn to a certain limit, usually $1,000 the overdraft becomes a loan and is subject to interest rates charged on credit card loans.

3) Credit Card Cash Advances
a) People with a credit card issued by a financial institution has the option of obtaining a loan called a cash advance, without making a special application each time funds are needed.
b) Interest here is calculated daily and begins at once and interest rate is usually higher than a line of credit or a personal loan.

4) Demand Loan
Customers with a good credit rating may arrange for a demand loan by signing an agreement to repay the loan in full at a certain date, with interest due monthly and the lender has the right to recall a demand loan at any time.


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