Borrowing Money

Things You Should Know

ABOUT CREDIT

The world runs on credit. Knowing how to use credit wisely is a key to being financially healthy. Misusing credit can lead to debt that overburdens or strips your financial resources.

The principle behind credit is simple: You purchase items or services when needed and you guarantee you will repay the lender according to a set of terms and within the agreed upon time period.

Credit can be a helpful tool for building financial security. It allows you to invest in yourself and build equity when buying a home over several years. It can also enable you to pay for large ticket items such as automobiles over an extended length of time.

When used prudently, credit offers short-term borrowing opportunities through credit cards or department store revolving accounts, for example.

Important:
Credit is best used where the value of an item will outlast the installment payments required to fully pay for the item.

ABOUT SECURED AND UNSECURED LOANS

Secured and unsecured loans are two entirely different types of loans. The difference involves the use of collateral.

Collateral is an asset pledged by a borrower to secure a loan that is subject to seizure in the event of a default. If the borrower doesn't pay back the loan, the collateral (merchandise) must be returned to the lender.

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