Modern-Day Shylocks: The 10 Worst Types of Loans You Can Get
August 4th, 2007–By Sushma Pradhan
Banks provide you loans for all occasions. The only criterion here is the eligibility.
There is no doubt that loans help one sail through turbulent times, but beyond the safety and security, if you make one mistake it will not take much time to hurl you down the ridge.
Here are few loans that we mostly apply for and at times may be unaware of minute matters that matter a lot later.
1. Student Loan: This loan helps the student to bear the burden of professional education expenses.
Advantages
• The monthly payments can be lowered and this is the indication that you can you can divert the money to the other field where you feel that you need to pay attention to.
• You only need to make the payment once a month for one company.
Disadvantages
• Though you pay lower interest rate, the interest savings are eaten up and the chances of discharge benefits may be lost
2. Unsecured Personal Loan: This is the kind of loan where you mostly use it for personal necessities or in the areas of your choice.
Advantages
• It offers great flexibility to the consumers
• Both the property owners and renter are eligible for the loan as it is not secured against property
• It can get arranged faster than a secured loan
Disadvantages
• Though it is not secured, however, it does not mean that there is no risk
• In case of a default on repayments of your credit, the companies have all the right to sue you to recover the money.
• The worst condition may be possession with respect to the loan amount
3. Fixed rate Mortgages: It is a mortgage where the interest rate do not change during the entire loan term.
Advantages
• The payment need to made monthly and is spread throughout a period of time
• The interest rate do not alter
• In case the rates go up there is protection
• When the rates go down one can refinance
Disadvantages
• The rate of interest is high
• In case the interest rate improves, the rate does not change
• The payment of mortgage is high
4. Balloon Loans: These loans are either partially amortized or not amortized. In most cases, balloon loans have payment lower than that of an amortized loan because of interest only payment.
Advantages
• An attractive initial low monthly payment
• Many balloons have conversion options, which means that one can convert the balloon loan into a new loan
Disadvantages
• A balloon loan has more risk than Adjustable rate mortgages.
• You risk foreclosure, if you are unable to make the balloon payment as the term ends or if you cannot refinance the loan at high interest rate.
5. Standard variable home loans: It is one of the popular mortgages. The interest may vary throughout the loan term in this type of loan.
Advantages
• The repayments may drop if there a drop in the interest rates
• Without penalty one can make extra or additional payments, which allows the payment of home loan faster
• You have the room for taken back the additional repayments
• It has various features and offers flexibility
Disadvantages
• It draws high interest rate than the basic home loan
• When interest rates rise, the chances of repayment also becomes high as the borrower is supposed to make large repayments
6. Fixed rate loans: In this type of loan the borrower’s repayments and interest rate are fixed for a said period, this could usually be one to ten years.
Advantages
• There is a assurance of repayment amount
• There is no change in the repayment amount even if there is a rise of interest rate
• There is a room for future budgeting
Disadvantages
• There is reduced flexibility
• In case the interest rates falls there is no change in the repayments
• There is a limited additional repayment and hence when limits are exceeded there are chances of break costs or fees
7. Low documentation and no documentation loans: These are products for borrowers where they do not have to be necessarily self-employed or possess tax returns
Advantages
• The borrower needs only to fill a simple income declaration form
• Here there is no requirement of tax returns
Disadvantages
• Associates itself with high interest rate
8. Graduate loans: These are also a form of unsecured personal loans, that lets fresh graduates’ involve in debt consolidation.
Advantages
• It allows debt consolidation at lower interest rate
• It is useful incase you have other debt e.g. credit cards
Disadvantages
• There are possibilities of lenders to encourage you include your student loan and overdrafts
• Students loans have lower interest rate therefore including it will be a wrong step, on the other hand overdrafts are interest free while you are on a student loan, but with graduate loans overdrafts start incurring interest
9. Payday loans: it is a short-term loan, which covers the urgent need of the borrower.
Advantages
• They are cheaper when compared to the charges levied on a bounced check or an overdraft charges.
• They are mostly seen as an short-term solution to the unforeseen financial constraints
Disadvantages
• The interest rates are too high from somewhere between 400% to 1,000%
• The interest makes it too expensive affair for a borrower
10. Wedding Loans: They are expensive yet people go for them. They are categorized as unsecured personal loan. Nevertheless, one can also obtain them as secured personal loan.
Advantages
• The most important advantage is one does not have to put something valuable at risk
• The loan process is not a lengthy affair, and therefore is a speedy transaction
Disadvantages
• They mostly do not carry high rate of interest
• There are many restriction on the money and the mode of spending
• There are lots of hidden possibilities regarding the rate and the terms, therefore the advertised rates may not be the actual rates