This page is a 50,000 foot introduction to consumer credit in the United States.
Within the United States, consumer credit can be divided along the dimensions of installment versus revolving and secured versus unsecured.
If you are in financial difficulty, it would be inappropriate for me to even speculate on the best course of action for you.
A goal of this series of pages is to help you make informed choices that will lessen the chance of your getting into financial difficulty.
If you live outside the United States, I have absolutely no idea whether any of this material applies to you.
The following are examples of installment loans:
If you pay extra money towards an installment loan in addition to your scheduled monthly payment, depending upon the the interaction between your loan contract, the laws of your state, and how you submit the extra payment, among the possible outcomes are:
That is in contrast to revolving loans.
The following are examples of revolving loans:
You spend a given amount, you make at least the minimum payment by the next due date, and you are then free to repeat the pattern until any one of:
A secured loan is backed by collateral.
If you do not meet the terms of the loan, the creditor will use the collateral to attempt to make itself whole.
In general I encourage you to view a secured creditor taking possession of your collateral in the event of non-payment in addition to all other legal recourse, not instead of all other legal recourse.
There may be non-traditional types of financing such as pawn shops which are outside my expertise.
My knowledge of pawn shops is limited to having watched the Twilight Zone episode where Jack Klugman pawns his trumpet.
The specific options that a creditor has will be determined by the relationship between:
Examples of secured loans are:
Do you want your creditor to repossess your car if you do not make the payments?
No, that is an outcome that any sane person looks forward to.
However, having collateral lowers the risk for the financial institution loaning you the money.
Lower risk for the financial institution means that a secured loan can be made at a lower interest rate than for an unsecured loan.
Regardless of the fact that using credit may make possible a vehicle purchase that could not otherwise happen, be certain to carefully research and compare prices instead of just buying based on payments.
Never allow the ease of obtaining financing to turn purchasing a vehicle into an impulse decision.
An unsecured loan is a loan that is not backed by collateral.
Examples of unsecured loans are:
While it is possible for credit cards to have collateral, I tend to think of credit cards as being unsecured unless some kind of collateral is explicitly stated.