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Have you ever wanted to borrow money but just never had the collateral that is needed? Many persons have been faced with that dilema. It is now possible to have an unsecured debt (spin-off from an unsecured loan). An Unsecured Debt is money that is borrowed without supplying any collateral. This means that anybody can now get a loan without needing to have a house or car or land.
This is a high risk debt, however, because if the borrower falls into hard times, the debt may never be fully repaid. Banks and other lending institutions implemented the Unsecured Debt policy to level the playing field, allowing just about anybody the ability to access a loan.
Credit Line is the maximum amount of money that is available for a loan. This means that any loan that is disbursed will not exceed the set amount. Everybody’s credit line will be different because there are a number of factors that affect exactly how much someone will be lent. Some of these include how good or bad your credit score is, how much money you are earning, what are your expenses on a monthly basis, if you have family, if you are the sole bread winner for your family, and so on. Taking all these factors, and more, into account when deciding how much to lend someone protects the bank or lending institutions interest by ensuring that will be able to recover their money and eases the pressure on the borrower in terms of what he has to repay.
For example, Man 1 and Man2 have two different circumstances. Man 1 works $4,000 a month and does not have family. Man 2 works $8,000 a month and has a wife and two kids plus mortgage on his house. When both men come in to apply for a loan, these factors will be taken into place. Let’s say they both want a $6,000 loan. Man 1 is more likely to get it since he really has no ties while Man 2 is likely to get a smaller loan due to his circumstances.
The Straight Line Method of calculating interest is pretty much straight forward, no pun intended. This method keeps the interest that is paid back at a fixed value. Simply put, you will pay back the same amount of money each time you make a payment until you have finished paying for the loan. Some people prefer this method as they do not need to be recalculating how much they have to pay each time but have one figure to work with.
Let us say, for arguments sake, that you borrowed $1,000,000 at 5% straight line interest. It means that everytime that you go to make a payment, you will be paying $1,000,000 x 5% = $50,000 until the loan has been completely repaid. The Straight Line Method produces one “straight” repayment figure.
If you are in discussions with someone for a loan, the lender may tell you that you have to pay it back with interest on a Reducing Balance basis. What this means is that each time you make a payment on your loan, the rate of interest that you are being charged is applied to the reduced balance of the amount you payed back. That means you are paying interest only on the amount of money that you have left to repay.
For example, if you borrow a loan of say $200,000 at a rate of 10% on a reducing balance basis, your first payment would be $200,000 x 10% = $20,000. So, you would now owe $200,000 - $20,000 = $180,000. The next time you make a payment, the interest would be applied to your reduced balance, which is the $180,000. So your next payment would be $180,000 x 10% = $18,000. You would now owe $180,000 - $18,000 = $162,000. The next payment you make would be 10% of $162,000, and so on. In the end, you end up paying less for your loan due to the reducing balance method. And as you can see, you pay back less each time.
