Wednesday, 23 July 2014

Cash loan or mortgage loan

Unexpected expenses, unfortunately, have the property that they occur most frequently in the least appropriate to this moment. If you're wondering about the choice of a cash loan, know that the mortgage loan will be plenty for you certainly favorable solution. Why?

The loan and the loan

The mistake is unfortunately common, interchangeable use of the term loan and the loan. These are in fact, although in certain areas like, two different financial products. Common features of both solutions is that their result is a debt that must be repaid by the borrower or the borrower. The difference between them is, inter alia, that from the legal issues of credit governed by the provisions of the banking law, while the loan is a civil code. Another feature that distinguishes credit loan is that in case of loan funds transferred to the borrower's become his property, while in the case of a loan, they are forwarded to the borrower only available for a limited time in the credit agreement.

The costs of both solutions

Apart from the above differences, these solutions also distinguishes their cost, especially when compared to will be subject to fees and charges associated with the granting of a cash loan and mortgage loan. Everything becomes clear after just one glance at the so-called APRC ratio, which is the annual percentage rate - it is expressed as a percentage of the value of all mandatory costs (commission for granting, interest and other fees, if any) of credit and loans on a scale of one year. Ratio of the annual interest rate for a mortgage loan is now about 10-11 per cent, while for cash loans amounts to even more than twenty percent or more. To illustrate the differences in the price we pay for both tools is to use a comparison of the cost of a cash loan and mortgage loan of twenty thousand, granted for a period of five years - both liabilities will be repaid in equal installments on time. For the real interest rate equal to 24% of the loan cash will be obliged to repay the monthly installments, the amount of which is about 549 . This makes throughout the entire repayment of the loan - within five years - financing costs reach a level of 12,940 . For mortgage loan APR at 10.00%, the monthly installment will be for approximately 412 , making the total cost of financing reaches the level of 4720 .

Why loan?

According to the example above, the difference in cost of the two products, that until 8220 , which directly indicates the advantage of a mortgage loan compared to cash. The difference in interest rates is due to the additional collateral mortgage. Its establishment is tantamount to a reduction in credit risk, which allows you to minimize the cost reductions associated with the granting of funding. Although the assumption of a mortgage loan is tantamount to incur additional costs the borrower - associated with the establishment of mortgages - it still remains favorable in relation to the cash loan.

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