Sources of Credit : A History
Prior to the 1970’s, there were fewer alternatives available to consumers for credit options. There were federal and state regulations that restricted the kinds of lending the financial institutions were permitted to do. With the 1970’s and 1980’s, major changes took place with financial deregulation.
Today, there are a host of innovative credit alternatives available to consumers. Some have interest rates that are fixed and some are variable. Some loans require collateral and others are made on your promise of repayment alone.
Installment credit is the type of loan utilized usually when purchasing a car, appliances or a motor home. This is also called closed-end credit. Each month you make your payment, the principal of the loan is reduced. Open-ended credit or non-installment credit refers to single payment
loans and also to loans that allow you to make irregular payments and to borrow more without reapplying.
The open-ended credit refers to charge accounts and credit cards. Most credit cards allow you to borrow interest free if you pay your balance in full each month by the due date. The disadvantage of credit cards is the temptation to have too many, overspend or make only minimum payments which will put you into credit troubles.
A home-equity loan uses your equity in your home as collateral for the loan. Usually, these loans are for up to 75% of your home’s appraised value, less the amount still owed on the first mortgage. The advantage of this kind of credit is that it allows you to borrow at a competetive rate. The
disadvantage is for the individual who lacks self discipline for spending. They will be more likely to overspend. If a person is unable to meet the loan payments, their primary residence is at risk.
Other sources of credit include commercial banks, savings and loans, credit unions and consumer finance companies. Before initiating any kind of loan or credit, research your options to determine which avenue is best suited for your situation. Identify the loan you prefer based on your particular borrowing requirements and ability to make payments.
