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Learn about different lines of credit or loans January 13, 2023

How to borrow money?

Do you need to borrow extra cash to fund a trip? Or pay for a home overseas? Or just need a credit card to manage cash flow? Read our latest blog post to learn about different loans and how to apply.


There are many different lines of credit that are available from various sources. How you apply for a line of credit or a loan is dependent on the lender’s requirements, the type of credit or loan product, and the country you may be borrowing from.  


It may be helpful to first understand the most common lines of credit or loan products used by migrants, which include: 

  1. Credit cards 
  1. Personal loans 
  1. Home loans 
  1. Business loans 


Credit, loans, or debt all require you to pay the amount you borrowed plus interest. ‘Interest’ is the price you pay on top of the amount you borrowed, which is how lenders make money. This is usually called the ‘interest rate’ and is a percentage of the amount of money you borrow. 


All these products must be repaid within the agreed schedule when you sign the contract. You can pay what you owe anytime. However, repayments are usually required monthly. If you miss a payment, you may be required to pay penalties or late fees. 


It is also important to understand the difference between secured and unsecured loans. A secured loan for requires ‘security’. ‘Security’ may be property you own which you promise the bank they will can take if you don’t meet the repayments. On the other hand, an unsecured loan does not need ‘security’. 


What are credit cards?  

Credit cards are used to pay for items or services using ‘credit’ in the short-term. This is money you have in advance that you borrow from the bank, which you repay at a higher interest. It is often used to pay for smaller purchases, like bills, gifts, flights, home appliances, and other short-term expenses. In addition to interest rates, you may also be required to pay an annual fee to use the credit card. 


Credit cards have a ‘credit limit’, which is the maximum amount of money you can borrow from the card. If you exceed this limit (called ‘overdraft’), you will have to pay additional money or interest.  


Some credit cards also offer rewards. The more you spent, the more you earn points. These points can be used to purchase goods or services from your credit card provider. 


Credit cards can be secured or unsecured loans. 


What are personal loans? 

Personal loans are a type of unsecured loan that can be used for making bigger purchases that a credit card may not be able to afford. They are typically offered by banks and other financial institutions. The loan amount, interest rate and repayment terms will depend on the lender you choose and your credit assessment. Personal loans are generally repaid in fixed monthly payments over a set period. 


What are home loans?  

A home loan, also known as a mortgage, is a type of loan used to finance the purchase of a property. The borrower is required to make regular payments to the lender until the loan is fully paid off. The property is used as ‘collateral’ for the loan, which means you will give the property to the bank if you fail to pay the rest of the amount. 


What is a business loan? 

A business loan is a type of loan specifically intended for business use, like starting a new business, expanding an existing one, purchasing inventory, equipment, or real estate, or for working capital. Business loans are typically offered by banks, credit unions, and other financial institutions, as well as by government agencies and private lenders. 


How can I apply for a credit card or a loan? 

The application may be different depending on which type of credit or loan you choose. It may also be different depending on the lender.  

  1. Research different lenders: Compare interest rates, fees, and loan terms from various banks, credit unions, and online lenders. 
  1. Check your credit score or credit rating: A credit score helps predict how likely you are to repay money you owe. This depends on your history. Your credit score or credit rating will play a big role in determining the loan terms you qualify for, so it’s important to know your score before applying. (Note: Some countries don’t ask for credit score or ratings, so check with the lender.) 
  1. Gather necessary documents: You will likely need to provide proof of income, such as pay slips/stubs or tax returns, as well as identification and information about your current debts.
    If purchasing a home, you will need to provide information about the property you plan to buy.
    To apply for a business loan, a business typically needs to provide financial statements, tax returns, business plan, and personal guarantees from the owners. 
  1. Fill out the loan application: You can typically apply for a loan online, by phone, or in person. 
  1. Wait for approval: The lender will review your application and credit history and will let you know if you are approved and for how much. 
  1. Review and accept the loan terms: Once you are approved, the lender will provide you with the loan terms, including the interest rate, fees, and repayment schedule. Make sure you understand and agree to the terms before accepting the loan.