Pick a Payment Loans

2007-07-24 08:31:47

( Business )



What is Pick a Payment?

Traditional loans require you to pay a combination of interest and principal. Depending on your loan arrangement, the interest rate is either fixed or adjustable.

The mortgage company also gives you a deadline each month, and you must pay on or before that specified deadline. Failure to pay on time can adversely affect your credit record.

Pick a Payment loans are classified as adjustable rate mortgages. In fact, they are also called option ARMs. However, they are distinct from the usual ARMs because they can also charge you much lower initial rates, usually for promotional purposes. Like credit card payment schemes, the lender requires a minimum amount that you need to pay in order to be in good standing.

Advantages of Pick a Payment Loans

Pick a Payment loans are designed to help people afford to buy homes and other large purchases. Thus, the mortgage company charges a minimum payment amount, and it's up to you if you want to pay more than that.

This comes in handy if you encounter temporary cash shortages because you can still service your loan without penalties. And on the other hand, you can also prepay part of your principal and the interest due during better times, without incurring a prepayment penalty. Pick a Payment is ideal if you are self-employed or if your income levels are unstable.

Precautions about Pick a Payment Loans

As attractive as they may sound, Pick a Payment loan terms do carry some risks. Since you can pay any amount each month as long as it is at least equal to the minimum, you may tend to underpay the interest or principal. The unpaid balances will continue to accumulate on your loan balance, and if left unchecked, can skyrocket after a few months.

And if you continue to underpay, you may find yourself with a negative amortization situation where you will be owing the lender more than what you have originally borrowed.

You definitely need a lot of discipline in servicing your Pick a Payment loan. While it can be relieving to pay only a minimal amount when your income is low, you should not overuse this privilege. Always be conscientious of your remaining liabilities, and make the determination to liquidate them as soon as you can.


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