Know Available Financing Options

You are not mistaken if you are thinking this is a site that typically focuses on the various credit options provided by credit cards. In the world of finance, we feel that select credit card programs offer a maximum in flexibility, ease of use and impact in our day to day money matters that few financing options can offer the consumer. That being said, we realize that credit cards are not perfect, and not always the best choice for your current needs of a borrower. The following is a comprehensive analysis of the various credit options that are available to consumers with an objective analysis of their advantages and disadvantages.

For this comparison of options we will be loosely defining financing as the process of borrowing, in any shape or form, but will try to limit ourselves to institutional borrowing with a few important exceptions.

Credit Cards
We would be remiss here if we didnt briefly mention credit card financing options. Numerous, flexible, rewarding and varied. Credit cards provide flexible lending to people within the full range of scores from bad credit to good and have a number of programs segmented to please even the most specialized consumer. They are however limited to relatively small loan amounts and are known to have relatively high interest rates, though there are a number of exceptions to both. There is a wealth of further information regarding credit card financing options on this very site so we will move on to the other options available to you.

Personal Loans
Personal loans are difficult to categorize, as the term covers a vast range of different borrowing possibilities. A loan extended to you from a family member or friend will typically be referred to as a personal loan, but the term has also been used frequently in the payday loan industry. For the sake of this analysis of options, we shall define a personal loan as an unsecured loan with repayment tied to your personal reputation. Another description would be to call this financing option an honor loan, as it is on your honor to payoff the debt.

Advantages vs. Disadvantages
The obvious advantage of a personal loan is an easy qualification without having to secure the borrowing. If you have a good reputation, handshake based, personal lending can be an option that others might not have access to. In addition, this type of borrowing is often typified with better than industry standard interest rates and repayment options. The disadvantages though can be staggering, as the emotional cost of borrowing from friends or family can be more costly than any interest rate, in addition the risk to your personal reputation can be more great than a risk to your credit score in the case of default. Tread with caution and weigh the risks and rewards carefully with this financing option.

Payday Loans
The payday loan is the often maligned, frequently scorned, dark underbelly of the banking industry. The reputation is partially earned by a number of predatory and outright scandalous lenders within this field, while there are professional, quality lenders within this industry. As a borrowing option you can expect very easy qualification standards, including no credit check at all in some cases, and very fast funding, as fast as 1 hour or overnight in some cases. When borrowing with payday loans you can expect very high interest rates and repayment costs to offset the easy access to the money they provide.

Advantages vs. Disadvantages
The advantages of using the payday loan option are the very fast access to the money you borrow and the almost guaranteed rate of approval, which is how they are also called 'emergency loans' by some. Borrowing amounts are typically determined by your income ranging from $200 - $3000 or more. Companies offering payday loans often require your bank account information and they get first access to your next pay check for repayment. The disadvantages are as numerous as the advantages, including very high interest rates (just below loan sharking rates regulated by the states), borrowing costs, and a very short loan repayment period. Advance loans are a very specialized financing option for special credit situations, you be the judge.

Mortgages
Mortgage lending is the credit option many are most familiar with. A mortgage simply refers to real estate secured financing, whether commercial or residential. Mortgages are typified by very high dollar amounts being borrowed, interest rates being a factor based upon the prime rate, your credit score and the amount borrowed and very long repayment terms typically over a number of years.

Advantages vs. Disadvantages
Mortgage lending allows for very high balance borrowing ranging from tens of thousands, to hundreds of thousands to in some cases millions of dollars. The cost of financing is pretty good relatively, with good interest rates associated with good programs and a good credit score, but the greatest advantage of the mortgage option is the access to very long term financing, with repayment terms commonly of 30 years, and in some cases up to 50 years. The disadvantages of a mortgage are that they are difficult ot qualify for if you have less than perfect credit, but more importantly, it is secured by your real estate, meaning you risk the loss of the pledged asset in the case that you default on your loan.

Home Equity Line of Credit
A line of credit, as defined here, will refer to an extension of credit tied to the equity in your home. As you know, the equity is the difference between what you owe and what your home is worth, and it is possible to speak with the banks and get a home equity line of credit, which is simply a credit line that is secured by your home. Unlike your mortgage a home equity line is typically more flexible allowing for you to write checks against the balance and access it at will only paying interest on the balance of what you borrowed rather than the balance available to you.

Advantages vs. Disadvantages
Home equity credit lines give you the ability to tap into your homes value when you need the money. Your home value is trapped in normal circumstances until you sell the asset or borrow against it, and in this way you can gain access to your accrued equity. Depending on the equity you have, it is possible to achieve very high loan amounts with this credit line option and at very favorable interest rates as it is secured by your asset. The disadvantages of this financing option are the same as a regular mortgage, approvals are not possible for all applicants, bad credit need not apply, and ultimately the credit line is again secured to your home, meaning you risk your asset in the case of default.

Secured Loans
We have already covered some secured loan options above, and in this instance we will refer to the secured credit option in general. Secured lending is typified by easier approval qualifications and thereby easier access to borrowers. Interest rates CAN but are NOT ALWAYS be lower than unsecured borrowing rates because of the mitigated risk to the banks or lender. There are a number of options to secure the loan you borrow that count, a cash deposit, insurance settlements, cars, real estate, lottery winnings, legal judgements etc.

Advantages vs. Disadvantages
Secured financing options offer lower interest rates and easier qualification standards than unsecured financing. The disadvantages associated with secured borrowing are that what you borrowed is tied to the asset you secured the loan against, meaning you risk its loss in the case that you do not meet your repayment obligation. In addition, it must be considered that you must have an asset of value to secure in order to qualify for this credit option.

Unsecured Loans
As opposed the secured credit options above, unsecured lending refers to any and all borrowing that the repayment is secured solely to your personal reputation or credit score. Unsecured loans can be acquired at your local bank, from law firms during legal cases, friends, family members and businesses. The options are endless, but the important thing to note is that the extension of credit is based on your reputation. We will forego a discussion of the advantages and disadvantages of unsecured loans as they are covered in the more specific credit options discussed.