In the modern consumer world, there are occasions when individuals will require different sources of personal finance. Often these are used to fund a range of high-value purchases such as securing a mortgage on a property or taking out a loan to enable the purchase of a new car. Put simply, the varied methods of securing personal finance allow for major purchases to take place without the need to have savings.
Whilst it is important for all individuals to adopt prudent financial plans (such as savings and investments) so that a comfortable retirement can be assured, it is also recognized that there will be certain circumstances when personal finance is required. In this article, three of the most common types of personal finance will be discussed in depth.
FHA loans
Federal housing loans (FHAs) are an increasingly popular form of personal finance among Americans. They are commonly taken out when seeking to secure a mortgage on a property, or when the refinancing of a home is required.
FHAs have the distinct advantage of having lower down payment requirements when compared with other types of mortgages. In many circumstances, the typical down payment on a mortgage can be as high as 20%. Clearly, raising this amount of money will be a huge obstacle for most potential homeowners, as on a $300,000 property this would represent a cost of $60,000. Therefore, for many types of FHA loans, the down payment can be as low as 3.5%.
Another key benefit of an FHA loan is that applicants with poor credit ratings or credit histories will still be considered. However, it can be beneficial to look for strategies to improve your credit score for an FHA loan as this may lead to more favorable levels of interest being charged.
Credit cards
In 2023, credit cards are one of the most popular forms of personal finance for millions of citizens around the world. They can be a convenient way to pay for everyday purchases (such as the weekly shopping trip) or occasional larger purchases such as a new television.
Credit cards provide the individual with a predetermined credit limit for which they can purchase goods. Every month a minimum amount of credit must be paid off the card at a pre-agreed rate of interest.
When looking for the best credit card for you it is important to compare a range of cards from financial providers, as some cards may offer cashback on purchases in addition to other attractive benefits.
Bank overdrafts
A final common example of consumer credit is a bank overdraft. When you open a bank account it may be possible to benefit from a pre-agreed overdraft limit for your account. This will allow you to make purchases over and above your current savings, provided that the account goes back into credit within an agreed period. Many consumers find that this facility can be an extremely convenient way to fund purchases when their salary has not been deposited in their account. Many banks and building societies may be able to arrange an overdraft that does not have a fee for the use of the service, and these can be an extremely attractive option for consumers.
