Getting The Hang Of Loan Lingo
If you are going to get a loan prepare yourself to be bombarded by all sorts of financial jargon. We find terms like “Agreement in Principle” and “Adjustable Rate Mortgages” to “Credit History” and “Equity Release”. No matter how you look at it, getting a loan is like getting a whole new education. If you feel that you have a decent command over the English language, just try asking a mortgage salesman for loan advice. Once it is all over, you might just come home feeling like a truck full of financial jargon crashed into you.
However, it really is not all that difficult when you look at the basics. For instance, “Agreement in Principle” is simply a roundabout way of describing the agreement that is made between the lender and the borrower regarding the amount of money that will be lent. To a large extent, this amount would rely on aspects like your credit history, the collateral that you are offering, and your current income among other things.
Are you already feeling a little overwhelmed by all this jargon? Why don’t I just simplify things a little more for you? Credit history refers to whether or not you have repaid loans that you had taken earlier. If you have been a defaulter on a previous loan, you have a bad credit history. If you have not defaulted, you will be said to have a good credit history. At this point, keep in mind the thought that a bad credit history will haunt you for the rest of your life when it comes to getting loans.
“Collateral” refers to the asset (usually property) that you use as security to procure a secured loan. An unsecured loan requires no such collateral. If you haven’t yet purchased any property, but are wanting to buy some, you will find all kinds of mortgage terminology like “Adjustable Rate Mortgages”. This is separate from “Fixed Rate Mortgages” where the interest rate is fixed no matter how the market reacts. In an adjustable rate mortgage, the rate may vary based on the market conditions. These days, one can make use of mortgages that have a combination of fixed and adjustable rates.
If you already own a house, but are paying mortgage on it, “Equity Release” might be the right choice for you. Equity means the difference between the value of your home and the mortgage amount that still remains due. Free this equity by taking up a home equity loan to fund some of your other expenses.
You would benefit if you familiarized yourself with some financial jargon before you started loan shopping. This will make you a lot more prepared to choose the best loan!