At 1st Choice Money Center, we’re proud to offer numerous loan products that can help you get some quick cash to remove yourself from a financial bind. From signature loans and personal loans to title loans and other choices, we have several robust alternatives to payday loans – potentially predatory loan options that often hurt borrowers more than they help.
Within any of our possible loan options, it’s important to understand what a few very basic terms mean. This kind of understanding will help you navigate all the important elements of any loan type, whether short- or long-term. Here are some basics to go over.
Anytime you’re being lent money, the group or agency lending you that money needs to have some kind of value put up as an insurance policy in case you can’t pay the money back. A very simple example here would be a car title loan, in which case the collateral is the vehicle in question – if the loan is not repaid within the agreed-upon terms and time periods, the vehicle will be repossessed by the financial institution that made the loan.
In many cases, including the example above, the collateral itself doesn’t have to actually be given to receive the loan – it’s just agreed upon (generally in writing) that the collateral will be transferred in cases where the loan isn’t paid back.
Principal and Interest
These terms are grouped together because they are linked and relate to each other. Principal refers to the original amount borrowed from the lender, while the interest is the extra percentage you pay said lender to lend you the money. Interest rates for loans will vary widely depending on the type of loan you receive and the amounts involved, among other factors.
If a loan agreement is broken by the borrower, whether due to late payments, missing payments or some other issue, this is called a default. This is considered a very bad word to hear in any loan situation, and a circumstance you never want to find yourself in. If you’re concerned about defaulting, speak to a loan officer about what your options are.
We discussed collateral above, and the lien is just the document that manages this area. It ensures that in a case of default, the collateral will become the property of the lender instead of the borrower. When a loan is repaid successfully, however, the unused lien will end.
A balloon payment refers to a larger payment or two that typically come near the end of a loan, payments where both interest and remaining principal balances are often being paid. One of the reasons payday loans are to be avoided is the propensity for them to end up in balloon payment situations, which can be avoided with many other loan types as long as you plan and budget properly.
For more on important loan terms to understand, or to learn about any of our signature or title loan options, speak to the staff at 1st Choice Money Center today.