According to a report, the average debt that a New York City resident carries is more than $3,000. This means almost every citizen of New York City has a borrowing of an average of $3,000 over on their name. There are many financial institutions that help people to become debt-free in New York City. There are many ways of becoming debt-free like debt consolidation, borrowing on credit, or borrowing on a mortgage. However, many people can not decide which one is better as they do not know many things about them. In the article below we have described the borrowing on credit and borrowing on a mortgage.
Borrowing on credit
Borrowing simply means taking something from someone. In the financial world, borrowing means taking money from someone. The technical term for borrowing is a loan. A loan is taking money from some individual or an organization or other entities. The person or organization that lends the money is called a lender and the person who borrows it is called the borrower.
Usually, the loan amount is repaid in installments within a specific period of time. The total amount repaid is the sum of the principal amount and the interest over that amount.
There are various types of borrowings. A few of them are listed below –
A personal borrowing is mostly a fixed amount. People borrow it for a specif period of time and repay in installments. While this loan may be cheaper than other borrowings but it has some limitations. Usually, these loans do not have a large amount. Also, there is always a time limit within which they are to be repaid. This time limit may not be suitable for everyone.
This is the kind of over-borrowing. In this your bank allow you to withdraw more money than you have in there. Some banks even provide interest-free overdrafts. However, to be eligible for this, you need to have a very credible financial history.
Almost everyone knows about credit cards. A credit card is a card that you use to shopping or transfer money. However, on a credit card, money does not come out of your bank account but you pay for the money spent later. Every month, you get a statement of the money you spent, and then you have the option to pay that fully or partially (minimum balance). However, if you pay less than the full balance, you pay the remaining amount with the interest in the future.
Borrowing on a mortgage
Borrowing on a mortgage means you take debt over your mortgage. The reason to borrow on a mortgage can be various. For example, you may have multiple loans, and instead of going for debt consolidation, you choose to borrow over a mortgage and pay off those loans at once. After that, you can pay the mortgage debt over a longer period of time in installments. Or you may need money to refurbish your kitchen or something else. However, borrowing money on a mortgage is not risk-free. Always remember that your home is going to be the security of the money and if you fail, you may lose your home.
Benefits of borrowing on a mortgage –
However, this does not mean that borrowing on a mortgage is a bad idea. No, it also has its benefits.
- Lower interest rate
- Lower repayment charges
- Longer tenure
- Lower installments
- Easy to get
Either you choose borrowing on credit or borrowing on a mortgage, knowing about their pros and cons before-hand is very important. Borrowing on a mortgage has many benefits like lower interest rates and longer tenure. However, it also has risks associated with it and that is losing your home in case of failure of money repayment. Other than that, there are various types of borrowing on credit like a personal loan, overdraft, etc. Borrowing on credit has a lower risk associated with it and is better for short-term borrowing.