The world of loans has become more complex over the years as financial institutions create more loan products to attract customers. Some people understand the differences but many do not, and can easily get themselves into financial difficulty as a result. Here is some information that may go some of the way to explaining the situation, although it is by no means the whole story.
Understanding the Different Types of Loans
Although terminologies may differ we could describe a very common scenario as an open-ended loan as opposed to a closed loan. There are significant differences between the two. Put simply, an open-ended loan is one where the customer makes only one application, and provided they keep up the payments, they can use the same loan on a continuous basis. Credit cards and lines of credit are the most common of these types of loans.
A closed loan is one where the original application is for a fixed amount and once that is repaid, the loan is closed. As the loan is repaid the balance reduces but it is not available to draw against as is the case with the open-ended loan. If further credit is required after the loan is paid out, another application must be made.
A secured loan is one where there is some asset that is used as collateral for granting the loan. If the borrower defaults on the loan, the lender can sell the asset to recover some of the money owed. An unsecured loan has no such backup and, as a result, is much more difficult to obtain. The lender is relying on the credit history and employment status of the borrower, and because there is no collateral to fall back on in the case of default, the interest rates are much higher.
Houses and Vehicles Most Common Loan Purchases
Most people need a loan to buy a vehicle. If they have a sound background they approach their financial institution for a personal loan, often unsecured, or they enter a hire purchase agreement, or they lease the vehicle. Personal loans and hire purchase in the past were the predominant method of obtaining vehicle finance, with leasing relegated to the business sector.
However, a Brisbane company, Alpha Car Finance, is changing that with their ready availability of leasing options. The Alpha difference car finance Brisbane is all about giving their clients choices. They have the option of leasing a vehicle for a fixed term, and paying a residual fee to own it at the end of the lease, or handing the vehicle back at the end of the term and taking out another lease agreement on a new vehicle.
With an Alpha Car Finance lease agreement the registration, insurance, tyre replacement and servicing costs are included in the weekly repayments, making it easy for low income earners to include these expenses in their budget. There is no good reason to choose any other type of loan to buy a vehicle than the Alpha lease option.
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Source: http://ezbukz.com/finance-news-reports/alpha-car-finance-2/
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