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Debts Write For Us

Debts

Debts refer to money given by one person to another. The most popular types of loans are mortgages and credit card loans with or without credit. One person can lend money to another at fixed or floating interest income. Hence, the borrower will pay the principal amount along with the interest amount over the loan repayment period. The word ‘debt’ is derived from an old French word ‘dette’ which means an obligation.

What are the Types of Debt?

Secured Loan

A secured loan is a form of loan that is backed by an asset (collateral) to reduce the risk associated with lending. Collateral can be property or cash. If the borrower defaults on the secured loan, the lender can seize the deposit and sell it to recoup the loss. As a result, secured loans often offer lower interest rates. Because the loan is secured by collateral and the lender has less risk.

Unsecured Loan

An unsecured loan is a popular form of loan that is not backed by a deposit. This means that if the borrower non-payments on loan, the lender has no assets to seize to recover its losses. Student loans, credit cards and personal loans are some examples of unsecured loans. Personal loans with unsecured loans, however, are subject to higher interest rates due to the absence of collateral. Lenders use credit reports to assess the creditworthiness of a borrower.

Revolving Credit

Revolving credit is an arrangement between a lender and a borrower that allows the borrower to borrow up to a predetermined amount on a recurring basis. Credit cards or lines of credit are examples of revolving credit. Credit cards have credit limits. User is free to spend till the limit is reached. The revolving loan repayment amount fluctuates based on the current loan balance. Revolving debt can be secured like a home equity line of credit or unsecured like a credit card.

Mortgage

A mortgage is a popular loan option used by many consumers. Mortgages are loans used to acquire real estate, with the property itself acting as collateral. A mortgage offers the lowest interest rate among consumer loan products. Additionally, mortgage interest is often tax deductible when filing taxes. The most popular mortgage loan terms are 15 or 30 years. The tenure is longer to keep the monthly payments affordable for homeowners.

What are the Advantages of Debt?

To know the importance of debt, it is important to know about the two terms ‘good debt’ and ‘bad debt’. The amount of debt a company or individual can borrow depends on its financial position or asset-liability gap. A loan that can be repaid in default is ‘good debt’. A corporation with a large amount of debt may be unable to meet interest payments if its sales fall. Therefore it will put the business at risk of bankruptcy. This may eventually lead to ‘bad debts’. On the other hand, a company that does not utilize debt may lose out on business expansion opportunities.

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