The term credit indicates a transaction that involves money. Nowadays credit is used by banks or creditors to deferred payment or payment at a later date for receipt of money, goods or services. Credit is given usually given by large banks, creditors or lenders to a borrower. And they use contracts and agreements to fulfil the obligations of lending and receiving. Then a specific sum of money is given to the borrower for education, family, household, personal, car vehicle and other financing purposes.
Here in South East Asia, most consumer loans are characterized by various types – Short term loans, instalment loans or long-term loans, secured and unsecured loans.
- Short term loan. This is also called payday loans for employed consumers, they are for short-term finance requirement. Short term loans have to be repaid at the end of the loan term in a lump sum including interest rates.
- Instalment loan or Long-term loans. This kind of loans are paid at regular intervals, usually monthly. Home and vehicle loans come under this category. The longer the repayment term, more the cash flow as interest rate calculations vary.
- Secured loans. In this category, you “secure” an asset, a home, car or any collateral that can be used to recover payment if you fail to make the guaranteed payments. Secured loans also apply to home and car loans and since they are backed by sizeable collateral, interest charges on such loans are lower.
- Unsecured loans. This loan is those that do not require collateral and usually given only to borrowers with excellent credit ratings and histories, more often companies or high net worth individuals and interest rates are compounded.
Securing a loan can be a very long process especially if are applying for a long-term or unsecured loans. Some creditors may require a lot of documents and some proof from your employers or previous creditors if you have a good credit standing, that’s it is essential to have a good credit profile whenever you apply for each of your loans.