It is not a shame or a sin to have debt provided there is a proper balance between the debt and equity. This balance will give you flexibility, help you to speculate your views and plan for the future repayment of the outstanding debt amount. You must know that there are different kinds of loans that you may take from a private lender or from any bank or government controlled financial institution. You must also know that there are some characteristics of debt as well.
The Time Factor
Borrowing and lending money and its transaction is characterized by few factors namely, tie, cost and risk considerations and all the three are closely related. All the term loans that you have are classified by their tenure for which the money is lent to you. Time can vary and therefore can have different names as well. You will find short term loans which usually range within one year or less, intermediate loans which have a time limit which is more than the short term loans and less than the long term loan. Whereas any long term loan can last for a period of even thirty years as in the case of mortgage loans.
Repayment Schedule Factor
Repayment schedule is the schematic plan of your loan payment spread over the whole tenure of the loan. These schedules match with the type of loan you have obtained and also affect the cost of borrowing. Schedules can also vary in types. You may have a schedule where you pay an amount which is calculated in terms of the principle and interest taken together and also in a different way where you pay the sum only as the interest and pay the principle as a single sum at the end of the tenure. In the first instance your interest amount decreases with time as each time you pay your principle amount is also reduced.
Cost Is A Factor Too
In plain and simple terms cost of a loan is merely the interest that is charged against the money that you borrow. This is better known as the rate of interest which is again categorized in two parts, fixed and variable, especially in case of term loans. Fixed rate of interest do not change over the whole tenure of the loan whereas variable rate can change and adjusted either daily, quarterly, half yearly, annually or at regular intervals of time like 3,5, 10 years. These rates are also called floating rate of interest and is tied with the Federal rates.
Security Of The Loan
You may also have to pledge some asset as a security against your loan in case of any loss the lender may face. These assets are called collateral and such types of loans are secured. You can check online to know more about collateral security.
Even learn about the best way to pay off credit card debt so that you can clear all your dues in an easy manner and live a tension free life. When you buy any asset on loan it acts as the collateral itself but in other cases you have to put other asset, cash or any other valuables as collateral security.
