How Does Loan Term Effect Your Credit?
If you've planned to get something on credit or if you need money urgently, a loan is exactly what you need. For most people, financing is a useful method of purchasing things they want but cannot afford with cash. Financing is really when money is lent to an external party under the condition of repayment of the loan principal amount plus interest over a period of time. In simple terms, a loan is a type of loan that is granted to someone else. You can find different types of loans available in the market. These loans are categorized based on the term of repayment, the amount and purpose of the loan not to mention, the borrower's financial capability.
Loans can either be secured or unsecured. Secured finance are the ones that are granted on the basis of something tangible like a property. They are generally repaid over a long period of time as agreed and with heavy interest rates. Lenders, usually the banks, consider this type of loan as an improved option than an unsecured loan because they're backed by something that can be taken back.
On the other hand unsecured loans are those that are granted based on credit. Lenders feel better about lending you money should you have at least a good borrowing limit or have enrolled in a secured credit line. This is because these types of loans carry higher interest rates and a shorter repayment term.
Credit worthiness is considered a major factor in deciding whether you can get a loan or not. There are several factors that lenders consider. ezcash like credit history, current income and employment status etc. play a significant role in deciding your creditworthiness. These factors, subsequently, have several implications on your loan interest rate.
In simple words, loans work on the principle that a loan is granted when the risk to the lender is lessened. For example, if you have been making payments on time, the lender knows that you will pay back the loan. If you default, then your risk to the lending company increases and they will charge a higher interest rate. This is how loans work. You have to be creditworthy for them to offer you a loan.
As far as the many kinds of loans are worried, you can find two major categories. The initial category includes secured loans which are given out on the basis of security, usually your home or car. Secondly, unsecured loans could be given. These loans do not require collateral. But, unlike secured loans, the borrowers who choose unsecured loans must have a very good source of income or job.
In the event of a secured loan, the lending company will calculate how much money it is possible to borrow before charging an interest rate. The rate will also be determined by the credit limit that the borrower has requested. The credit limit may be the maximum amount that the borrower can borrow prior to the lender will consider his loan to be secure. The higher the credit limit, the better rate will undoubtedly be charged. Similarly, the repayment period and the monthly installment may also affect the rate of your loan.
Another important factor, which affects the rate of one's loan term, can be your creditworthiness. The creditworthiness of a borrower is determined by the Fico score. Your credit score is calculated using the amount of credit that you have previously taken and the repayment history in the previous loan term. If the current financial conditions have worsened your creditworthiness, then your lender may consider your loan term as unfavorable and therefore charge a higher rate of interest. Thus, it all depends upon your creditworthiness to decide how much money you can borrow.