Many people instinctively believe that borrowing is inherently a bad thing. Used to excess, they’re right. But how many of us have the money to buy a house – or even a new car – outright? Used judiciously, however, borrowing can provide powerful leverage that can improve your financial standing.
Take a $200,000 house. Assuming a downpayment of 20%, or $40,000, a $50,000 rise in the price of that home would mean the owner more than doubled his or her money! If the homeowner had paid with cash, the $50,000 increase would represent a return of just 25%, minus the opportunity cost missed by not investing the remaining $150,000. That’s the power of leverage.
To help you “borrow smart,” this article explains some of the basic terms and concepts behind lending.
Structuring the Terms of Your Loan
Borrowing can be a smart investment in your financial future, especially if used for a house that will likely appreciate over time, improvements that raise the value of your home, or college costs that will eventually pay off in higher earnings potential. And sometimes borrowing is unavoidable, especially in cases of emergency.
Fortunately, today’s financial institutions make a wide variety of loans readily available and relatively easy to obtain. However, loans are generally complex financial transactions. The more you know before signing the loan contract, the better prepared you will be to choose the type of loan that best meets your needs.
How your loan is structured helps the lending institution determine how much risk they are assuming, and, in turn, what interest rate they will charge. There are three basic loan features that define your loan: whether the loan is paid back in installment payments or as a lump sum, whether the loan is secured or unsecured, and whether the interest rate on the debt is variable or fixed.
Installment Loans vs. Lump Sum Payment
When you take out a loan, you promise to repay the loan, plus interest, based on a contractual agreement. When you choose an installment loan, you borrow a lump sum of money, and then pay back a fraction of what you borrowed at regular intervals over an extended period of time. This way, you pay back both the loan principal and interest gradually. If you prefer, you may choose to borrow a lump sum of money, then pay back the entire loan principal and all accrued interest in a single payment at some future date in a single, lump-sum payment.
Secured vs. Unsecured Loans
When a lender analyzes the risk they associate with a debt, an important consideration is whether the loan is secured or unsecured. A secured loan is based on your ability to provide collateral of similar or greater value than the amount being loaned. Should you default, the bank can reclaim and sell the collateral to recoup most, if not all, of the amount loaned. A home loan is an excellent example of a secured loan – the bank will lend most of a home’s purchase price, but retains a lien against the home for as long as the loan is outstanding.
In contrast, an unsecured loan is based solely on a promise of repayment. Because the lender holds no collateral, unsecured loans carry significantly more risk for the lender which, as a result, charges a higher interest rate on the borrowed funds.
Fixed vs. Variable Interest Rate
The interest rate you pay on a loan is based on many factors, including your credit rating, your payment history, and whether your loan is based on a fixed or a variable interest rate. Fixed interest rate loans are just as the name implies – the interest rate does not change during the term of the loan. Because the lender cannot change the rate as market conditions change, a fixed-rate loan usually has a higher initial interest rate than a variable interest rate loan.
The rate on a variable interest rate loan, in contrast, generally starts slightly lower than the fixed rate, but it is “adjusted” from time to time to reflect current economic factors. If rates drop, the variable loan rate will typically drop. If rates rise, the variable loan rate will normally rise. Because of the initially lower interest rate, the monthly payment on a variable rate loan is lower than its fixed counterpart. This lower payment often allows you to qualify for a higher loan balance.
Required Lender Disclosures
Lenders are required to tell you exactly what a loan will actually cost per year, expressed as an annual percentage rate (APR). Some lenders charge lower interest but add high fees; others do the reverse. The APR allows you to compare apples to apples by combining the fees with one year of interest charges to give you the true annual interest rate. If the lender quotes you a periodic interest rate, this won’t be the true interest rate because it does not include the fees he may charge you.
Every lender is required to provide a total cost disclosure before a loan is made. It will tell you exactly what the loan will actually cost you in dollars and cents if you make all payments to the lender as you’ve agreed.
Smart borrowing can work in your favor – but only if you understand how lending really works. Contact us for more information if you’re considering a new loan or deciding how to proceed with an existing one.
We firmly believe that the internet should be available and accessible to anyone, and are committed to providing a website that is accessible to the widest possible audience, regardless of circumstance and ability.
To fulfill this, we aim to adhere as strictly as possible to the World Wide Web Consortium’s (W3C) Web Content Accessibility Guidelines 2.1 (WCAG 2.1) at the AA level. These guidelines explain how to make web content accessible to people with a wide array of disabilities. Complying with those guidelines helps us ensure that the website is accessible to all people: blind people, people with motor impairments, visual impairment, cognitive disabilities, and more.
This website utilizes various technologies that are meant to make it as accessible as possible at all times. We utilize an accessibility interface that allows persons with specific disabilities to adjust the website’s UI (user interface) and design it to their personal needs.
Additionally, the website utilizes an AI-based application that runs in the background and optimizes its accessibility level constantly. This application remediates the website’s HTML, adapts Its functionality and behavior for screen-readers used by the blind users, and for keyboard functions used by individuals with motor impairments.
If you’ve found a malfunction or have ideas for improvement, we’ll be happy to hear from you. You can reach out to the website’s operators by using the following email
Our website implements the ARIA attributes (Accessible Rich Internet Applications) technique, alongside various different behavioral changes, to ensure blind users visiting with screen-readers are able to read, comprehend, and enjoy the website’s functions. As soon as a user with a screen-reader enters your site, they immediately receive a prompt to enter the Screen-Reader Profile so they can browse and operate your site effectively. Here’s how our website covers some of the most important screen-reader requirements, alongside console screenshots of code examples:
Screen-reader optimization: we run a background process that learns the website’s components from top to bottom, to ensure ongoing compliance even when updating the website. In this process, we provide screen-readers with meaningful data using the ARIA set of attributes. For example, we provide accurate form labels; descriptions for actionable icons (social media icons, search icons, cart icons, etc.); validation guidance for form inputs; element roles such as buttons, menus, modal dialogues (popups), and others. Additionally, the background process scans all of the website’s images and provides an accurate and meaningful image-object-recognition-based description as an ALT (alternate text) tag for images that are not described. It will also extract texts that are embedded within the image, using an OCR (optical character recognition) technology. To turn on screen-reader adjustments at any time, users need only to press the Alt+1 keyboard combination. Screen-reader users also get automatic announcements to turn the Screen-reader mode on as soon as they enter the website.
These adjustments are compatible with all popular screen readers, including JAWS and NVDA.
Keyboard navigation optimization: The background process also adjusts the website’s HTML, and adds various behaviors using JavaScript code to make the website operable by the keyboard. This includes the ability to navigate the website using the Tab and Shift+Tab keys, operate dropdowns with the arrow keys, close them with Esc, trigger buttons and links using the Enter key, navigate between radio and checkbox elements using the arrow keys, and fill them in with the Spacebar or Enter key.Additionally, keyboard users will find quick-navigation and content-skip menus, available at any time by clicking Alt+1, or as the first elements of the site while navigating with the keyboard. The background process also handles triggered popups by moving the keyboard focus towards them as soon as they appear, and not allow the focus drift outside of it.
Users can also use shortcuts such as “M” (menus), “H” (headings), “F” (forms), “B” (buttons), and “G” (graphics) to jump to specific elements.
We aim to support the widest array of browsers and assistive technologies as possible, so our users can choose the best fitting tools for them, with as few limitations as possible. Therefore, we have worked very hard to be able to support all major systems that comprise over 95% of the user market share including Google Chrome, Mozilla Firefox, Apple Safari, Opera and Microsoft Edge, JAWS and NVDA (screen readers), both for Windows and for MAC users.
Despite our very best efforts to allow anybody to adjust the website to their needs, there may still be pages or sections that are not fully accessible, are in the process of becoming accessible, or are lacking an adequate technological solution to make them accessible. Still, we are continually improving our accessibility, adding, updating and improving its options and features, and developing and adopting new technologies. All this is meant to reach the optimal level of accessibility, following technological advancements. For any assistance, please reach out to