Dennise Williams, Staff ReporterLoans can enhance the quality of your life if handled properly. The key to remember is that once you borrow, you have to pay it back a pesky little point but an important one.
And with the loan advertising blitz put on by the various financial institutions, the loan options seem endless and enticing.
Of course, the reality is that each type of loan is suited to different objectives. And so we present a condensed version of the typical loans to be found on the Jamaican market and the best use for each. Naturally, your best bet is to sit with your banker and discuss how best to tailor a loan to your lifestyle.
Personal Loans
The interest rate charged on a personal loan is usually less than that on credit cards. So, if you are making a major purchase that cannot be paid off in 30 days, it is probably better using a personal loan.
Secured versus Unsecured
If you take out a loan without collateral and cannot pay it back, the lender has to write you off as a bad debt, hence these carry a higher interest rate because of the greater risk to the lender.
Personal Overdraft
An overdraft is more expensive than a personal loan. However, it does allow you to borrow the money when you need it. Once you repay, you can borrow the money again without reapplying.
Car Loans
Car loans are usually secured against the vehicle. But don't just accept the finance deal offered by the car dealership without looking around. For some, it may be better to line up the finance first and then buy the vehicle. That way you may have more negotiating power with the dealer because you are buying with cash.
Remember, a car is a de-preciating asset, so the shorter the time period in which you borrow the money, the better.
Student Loans
Tertiary students can also borrow from a number of the major banks at a competitive rate and sometimes we stress the word sometimes cam-puses offer special rates on loans without any security.
Pay Day Loans
Borrowers are offered short-term finance to tide them over until pay day. But beware, the fees are exorbitant. In some cases you can be paying up to 1,000 per cent.
Home equity loans
If you have already built up equity in your home, you could consider a home equity loan, which lets you borrow the repaid amount again to fund something else. Borrowers who access money this way are usually renovating their home or borrowing to buy shares that is borrowing for something that will increase in value rather than a consumable such as a holiday.
Revolving lines of credit
Revolving lines of credit are similar to home equity loans except you can continually redraw the money once you have repaid, without reapplying. But each time you redraw, there may be fees involved. And there may be a minimum amount you can redraw. There are no set payments other than an obligation to meet the interest component on a monthly basis.
Now with all these options in mind, you may be ready to go out and borrow. But slow down a little.
Remember, banking is a business and the institution must ensure that it will be repaid. And so, the same way that you assess the loan you want, the banker is assessing you. The key points bankers assess are:
1. Ability/capacity to repay.
2. Credit history.
3. Collateral.
