Different Types Of Credit

A businessman is depicted researching different types of credit on his laptop
Online Loans And Types Of Credit
Part 1 Different Types Of Credit
Part 2 The Popularity Of Credit Cards
Part 3 Applying For A Credit Card
Part 4 Personal Loans Online – What You Need To Know

In the 21st century it is difficult to imagine living without some form of credit. The American Dream is still the most powerful driver that incorporates a strong desire to consume and thrive in the community. It is a fact that credit in the US has always been easier to achieve than in some European countries and citizens have come to see the use of credit as a normal way of life. In this article we take a look at:

  • What credit is
  • The different types of credit
  • Secured and unsecured credit
  • The safety of online mortgages

In 2011 there were some indications that soon after the financial crisis the attitude of Americans towards debt had changed with many people planning to reduce the amount that they owed. But, as the recession began to recede into the background, many people have increased their use of use credit as part of their daily lives. One of the driving factors behind this increase of credit is the marketing by lenders who see opportunities to make ever larger profits.

The definition of credit

The definition of credit is quite simple. It means making an agreement to receive money or goods and to pay at a future date. Each company offering credit facilities will assess the capability of the borrower to pay the sum in full when it is due.

Credit is an agreement to receive money or goods and to pay at a future date

In the past there was always an element of trust involved in a credit arrangement but in the 21st century, lending is all about making profits and the big businesses that offer credit use a complicated system of personal details and credit based algorithms to decide whether or not to lend money. The deferred payment agreement (credit) always comes at a cost to the borrower. Lenders charge interest (a sum of money) so whatever the borrower is buying will always cost them more than the original cash price.Therefore, consumer credit can be explained very simply as using money, services or goods without immediate payment.

Different types of credit

This article takes a more in depth look at some of the types of credit available through online platforms as well as highlighting the disadvantages that come with spending money that has not yet been earned.

A group of colleagues are shown researching their credit options

Credit has become a way of life for most people even if they are not fully aware of exactly how it works. Here you can read about a selection of the different kinds of online credit agreements, how they work, how much they cost and how to avoid choosing the wrong financial product.

Banks, online lenders, stores and credit

Most credit is issued by banks in the form of credit cards, overdrafts, home loans and personal loans. But, you can also buy goods on credit through hire purchase, a car loan or through a store card.

The online sources of credit mainly focus on credit cards, mortgages and personal loans and these are the ones that are being examined in more detail. Payday loans are a separate product and are dealt with in another article. There is a huge amount of choice if you want to borrow money or to pay using credit. But, it is important to choose the right kind of agreement as some forms of credit can put your home at risk.

Secured and unsecured credit

Banks will offer secured credit, that is, an agreement that involves the borrower putting up some collateral e.g. deeds to a property. Or, they will offer unsecured credit. The most popular form of secured credit is a home loan or mortgage and the most popular form of unsecured credit is offered as a personal loan or a credit card.

Credit has become a way of life for most people even if they are not fully aware of exactly how it works.

In the US, as in other countries, most people look upon mortgages as a very different kind of credit to that used for retail spending. For most people this is the only way that they can hope to achieve the dream of owning their own home.

Mortgages or home loans

If you are looking for a mortgage you will need an excellent credit rating and a good deposit. The best place to go for information about mortgages is your own bank or look online to find out about rates and terms. Different types of credit are used for different purposes but all contracts are legally enforceable so it is important to understand that borrowing money should not be undertaken without some careful thought. In fact, borrowing money using your home as collateral is going to put your home at risk if you do not keep up repayments.

Applying for a mortgage online

Although most people still use their bank or a financial agent to apply for a mortgage there are a growing number of online lenders which can be approached for funds. Most well known banks already have websites and are making the process of applying for a home loan a much more streamlined process. If you are a first time home buyer you may prefer to meet with a loan officer face to face but for repeat customers, an online home loan can often be organized without an in person meeting.

Is an online home loan safe?

Do not be afraid to use online application processes for a mortgage. The latest software has made the process very simple and it is secure. Websites all have firewalls to protect the applicant’s financial information and personal details. You can check the security of a site by looking for the padlock sign and the ‘https’ in the url address.

A couple are shown visiting their bank for mortgage advice with an expert adviser

Online applications allow you to upload documentation that is needed to prove your identity, address, proof of income and financial details. Making an application online is a streamlined procedure and you will get your request authorized faster. This can make a difference to whether or not you secure the home you want or whether it goes to another buyer.

Looking for the best mortgage deal

As with all financial transactions, it is always a good idea to shop around and find out about rates and the terms of home loan contracts before committing yourself to the final deal. You can choose the right term of the loan. Mortgages are available for up to thirty years. Make sure that the lender is registered and regulated as there are a lot of new lenders on the market looking to maximize their profits.

Online Loans And Types Of Credit
Part 1 Different Types Of Credit
Part 2 The Popularity Of Credit Cards
Part 3 Applying For A Credit Card
Part 4 Personal Loans Online – What You Need To Know

About the author

Mark Larsen

Mark Larsen has worked in the finance industry for over 20 years. Over the course of his career, Mark has amassed experience in personal finance and especially short-term lending. He shares his valuable insights on onlinecreditusa.com