As mentioned in the previous section, there are two types consumer credit loans: unsecured loans and secured loans. After learning and considering which loan package is right for your financial situation, you need to determine where to borrow from (who will lend you money).
Institutions providing lending services in the market include banks and financial companies. Most people have heard of, even approached, banks to apply for a loan. However, it seems that many people still do not know about financial companies.
SO, WHAT’S THE DIFFERENCE BETWEEN A BANK AND A FINANCE COMPANY?
AND WHEN IS A LOAN FROM A FINANCE COMPANY THE MOST APPROPRIATE SOLUTION?
What is consumer credit?
Credit cards, auto loans, home mortgages, pawn shops … you’ve probably heard a lot about these forms of credit over the years-advantages and disadvantages. But credit itself is neither advantages nor disadvantages. Credit is merely a tool for buyidisavantagesng something now and paying for it later. How you use credit is what’s advantages or .
None of your favorite products would exist if businesses hadn’t borrowed money to make the products. For example, small, short-term loans known as micro-loans are provided to micro and small businesses by community development banks. These loans finance start- ups/businesses in low-income communities as part of a plan to reduce poverty. Thus, businesses get more capital to operate production lines and create products for consumers.
In the previous example, Tuan needed a motorbike for work and Mai wanted to buy a phone she loves. Two phone and motorbike manufacturers that Tuan and Mai want to buy from had the same starting point of mobilizing capital from different sources to produce. Usually, companies borrow from financial companies or banks. Accordingly, companies get money to expand their production scale, improve equipment, and increase output. As a result, their products are sold in stores over time, meaning customers like Tuan and Mai can easily buy their products. Once they are stable and profitable, companies pay off their debts and call for new investments to implement new projects.
BORROWING ALSO CAN BE A LIFESAVER IN AN EMERG ENCY - YOU CAN’T JUST TELL A RUPTURING APPENDIX TO WAIT UNTIL PAYDAY.
- you can’t just tell a rupturing appendix to wait until payday. By accepting a credit card payment, the hospital essentially lets you take a loan from the credit card issuer to pay for the emergency appendix surgery. These are unexpected events that we cannot anticipate. Tuan and Mai, who both have a regular income, set aside savings for emergency cases. However, if the situation becomes so serious and urgent that they don't have enough money to pay and they are unable to raise the capital in time, things could become troublesome. If this were to happen, they would need to borrow a sum of money and gradually repay the debt later.
On the other hand, too many people eagerly “buy now” without thinking about their ability to “pay later”. So, they end up owing money for purchases they might not even remember making or really didn’t need in the first place. They also pay more than what each item cost.
In the previous analysis of shopping habits, we learned that Mai often goes shopping for branded goods when there is an announcement of a discount at the stores. Tuan also spends nearly 50% of his spending money on shopping. And it’s not just Tuan and Mai – most of us are familiar with the idea of “like to buy”. However, if this situation persists without a spending plan, Mai will end up with a large amount of debt due to her inability to balance her income and expenses.
Even if you don’t need to borrow money today, you could find yourself flooded with tempting offers for car loans, credit cards, cash-advance loans, and more from pawn shop or apps. These are forms of “hot loans”, often targeting individuals who do not know about finance companies. “Hot loan” lenders find a multitude of ways to offer and convince consumers to use their free-interest loan service just by making a phone call. Young people often get caught in a “hot loan” trap in order to pay for their tuition fees, living expenses and accommodation. This results in loss of money or more seriously, them joining an illegal lending group.
SO, BOOSTING YOUR BORROWING IQ NOW WILL PREPARE YOU TO MAKE SMARTER DECISIONS WHENEVER YOU DECIDE TO TAKE THE CREDIT PLUNGE.