Some Financial Terms to Learn Before You Borrow MoneyFast Action Finance
Finance and money in general is a scary topic for many of us. All of us have a fear of going bankrupt and becoming destitute and with so much coming in and out of our accounts on a daily basis it can sometimes feel as though we’ve got no control over the amount we spend. Combine this with complicated laws and awkward contracts and sometimes it can feel like you’re signing your life away to faceless corporations.
This can then get even worse when we borrow money, as we will then be tying ourselves into a regular contract that could get us into trouble if we fail to ay. Often taking out a loan is a last resort, or the only way we can live the lifestyle we want to, but we worry that we may have made a mistake and sealed our fate.
Making matters worse is the complicated jargon and financial-talk that surrounds the process of taking out loans. Sometimes it feels like we’re being blinded with science to the point where we end up just nodding and hoping for the best. Before you start hunting for the best loan then or even discussing your financial situation, here are some terms to learn so that you are a little more savvy and able to make a better decision.
APR is the ‘Annual Percentage Rate’ and this is how much the value of your loan will increase each year. This will be written as a percentage, so if you take out a loan for $50 and the APR is 2%, you’ll owe $51 by the end of the year (assuming you haven’t paid any back).
This is the schedule under which you will repay your loan. The quicker you pay back the loan, the less interest you’ll pay – but of course that’s also harder on your immediate cash flow.
Collateral is what you use in order to ‘secure’ your loan and offer a guarantee to your lenders. You might take out a car title loan for instance in which case you offer your car as a guarantee in case you can’t make the repayments. This is a good strategy for you because it often means the lender will offer you a lower APR (because you’re now a less risky proposition).
Your credit rating, score or history, is a score that represents how good you’ve been with money in the past. The better this score is, the more easily you’ll find a loan for a good rate – again because it will mean you’re a less risky customer.
PPI stands for ‘Payment Protection Insurance’ and is a type of insurance that you take out to cover your loan. This is a good move, but be sure to shop around as some lenders will try to encourage you to take out their PPI packages for convenience which often don’t represent the best deals.
Restructuring means discussing the terms of your loan with your lender when you’re struggling to follow the repayment schedule. Many lenders are happy to restructure loans if necessary as it means they’re less likely to lose you as a customer.
These are just a few terms you might hear when discussing loans. Do your research and arm yourself with knowledge – that way you’ll be more likely to get a great deal and pay back your loans without incident.