The Ins and Outs of Credit Financing

Written by admin on December 5th, 2010

Credit financing is the best way for a consumer to get items that they want, without needing to have the full payment right away. It enables you to purchase a ,000 car and make monthly payments for 3-6 years, instead of waiting until you have saved up ,000 to give to the dealer. Credit financing also turns that ,000 car into a ,000-,000 car depending on your interest rate and how long you carry the loan. There are many different types of financing, what types you are eligible for depend on your circumstances and credit history.

There three distinct types of credit financing: prime, sub-prime, and secured.

Prime, with the best terms, is usually reserved for consumers who have FICO scores above 700, although some prime lenders may start handing out financing, with less favorable terms, at 650. The most favorable terms are usually given to those with FICO scores over 800 (the top 5% of American consumers).

Sub-prime credit financing is given to consumers who cannot get prime, but also have scores good enough to turn down secured financing offers. Sub-prime credit financing often carries outrageous interest rates and other fees to offset the risk that these companies take by lending money to those with “less-than-perfect” credit.

Secured credit financing is used by those whose scores are too low to even receive sub-prime offers or those who cannot get prime offers, but also do not want to pay the high fees and interest associated with the sub-prime market. These loans can be secured with money equal to the loan or valuable assets.

There are also three distinct categories of credit financing: Revolving, charge, and installment.

Revolving credit financing is usually in the form of a credit card. It is where you are extended an amount of credit and can use that credit as you want, as long as it is kept within the credit limit. You are also allowed to make payments on a revolving account, instead of paying the entire balance each and every month.

Charge credit financing is usually in the form of a charge card or net account. It is where you are given an extension of credit to use as you want, but are required to pay the entire amount each and every month on or before the due date. How many days the due date is after the statement closes will depend on the terms of the account.

Installment credit financing is usually in the form of a loan. It is where you are given one lump sum amount and allowed to slowly pay that amount back within a specified period of months. You cannot continue to re-borrow the paid back portion like you can with the two other categories of financing.

Remember, the most important part of credit financing is making sure you have enough money to cover your minimum monthly payments. This will keep you out of trouble and help keep your credit file clean.

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