Types Of Loans - Page 2

Margin Loans

You can apply for a loan against your stocks, bonds, mutual funds and other securities; this loan is known as margin loans. Compare to credit card loans and installment loans, margin loans have lower interest rate. Hence, you can save thousands of dollars in interest costs if you are taking margin loan than credit card loan or installment loan. The larger your credit line and the more active a trader you are, the lower your margin loan interest will be.

Beside margin loan is inexpensive, it is convenient. Most brokerage firms allow you to access your margin loan line of credit by writing check or using a debt card tied to your asset management account. You can spend the borrowed money to buy more securities or to purchase anything else your desire.

However, understand the risks of borrowing on margin before you assume such a loan. When you use margin debt, you pledge the value of your securities as collateral. If the value of those securities falls sharply, you must put up more cash, or your broker will automatically sell your securities to meet the margin call.

Mortgage Loans

For many people, a mortgage loan is their largest loan they ever undertake to buy or renovate a home. Mortgage loans are secured loans, allowing the mortgage lender to repossess your home if you fail to meet your payments. Mortgages come in many types, fixed rate and adjustable rate, as well as several maturities, though 10-year, 15-year, and 30-year mortgage are most common.

Most mortgages require that you invest a certain amount of money as a down payment, which can be as little as 5 percent or as much as 25 percent. The lender then calculates how much of your gross income the monthly mortgage payment will absorb. Depending on the lender, it normally doesn’t want the payment to consume more than 28 percent of your gross income. The lender then determines your other debt obligations to make sure that your can also afford the mortgage repayment.

Retirement Plan Loans

Another type of loan that you can borrow is from you own retirement account. If you have built up equity in a retirement plan, such as a 401(k) salary retirement plan, you may be able to borrow at attractive rates, as long as you follow certain rules. Most companies allow you to borrow up to a certain amount of the assets accumulated in your 401(k) plan. Often, you must shift the amount of such as a guaranteed investment contract (GIC), for the duration of the loan.

The interest rates vary by company, but it is usually one or two points more than the prime rate. Most companies will want you to pay your loan repayment through your salary deduction in order to ensure you repay your loan. Although most companies will allow you to repay your loan in full at any time, you need to aware that the longer you take to pay off the loan, the higher your interest costs over the life of the loan.

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