You see, interest rate is like the rent cost of money. It's like you are employing someone else's money and you have to pay that money salary. In money, the money's salary is often stated in terms of the ratio between money borrowed and how much you have to pay for borrowing such money. That ratio is called interest rate.
For example, if you borrow $10,000 and you have to pay $3,000 per year for not paying that $10,000 then your interest rate is $2,000/$10,000=30%. Simple?
That's assuming that the money you borrow is constant, namely $10,000. If you don't pay your interests, then the $3,000 is added to your loan. So next year, you owe $13,000. Two years from now, you'll owe $16,900. Got it? In Math, few functions increase faster than exponential function, and this is one of it.
If you borrow some money at 30% interest rate from a credit card company and 9.9% interest rate from your mortgage, then you are paying more money for your credit card company for every unpaid dollar loan.
Each dollar from a credit card company costs 30 cents per year, while each dollar from your mortgage costs 9.9 cents per year.
Think of it this way. Say each dollar that you owe is like your employees. Just like your boss paying you your salary for borrowing your time, you pay your creditor for borrowing their money. You should of course, try to fire the higher paid employee first. Why hire money from the credit card company for 30 cents per year if you can hire money from your mortgage company for 9.9 cents per year.
For simplicity's sake, say each dollar from a credit card company is worth the same with each dollar from your mortgage, obviously you want to pay less salary to the credit card company. So you should pay your credit card company first.
If you owe $30,000 from a credit card company and $30,000 from your mortgage, for the same payment, you'll be free of debt cheaper if you pay your credit card company first.
I made a simulation and put the result in a very easy to understand table in http://fasterfinancialfreedom.com. Then, I translated the whole thing into English for even more sense.
Unsecured loans are not backed by any collateral. The lender is not offered any material security to recover his money in case the borrower fails to repay. So, unsecured loans carry higher interest rate than a secured loan. Many people abstain from applying for unsecured loans for the fear of high interest. But the case of a cheap unsecured loan is different. Unlike other unsecured loans, this loan comes with low rate of interest. So, the borrower will not require shouldering the burden of high interest.
Cheap unsecured loan may not be available with all the lenders. It is highly risky for the lenders. So the timorous lenders may shy away from approving a cheap unsecured loan application. That is why it becomes necessary to explore the loan market and search out the lenders who are brave enough to undertake high risk.
Since the loan market is quite enlarged, it is better to employ the short-cut method of exploring it. In this case using the Internet will be a better option. There are online lenders whom you can access through the Internet. By sitting in your house or office you can collect quotations from them and compare various cheap unsecured loan packages. Ultimately, you will find out which one is a cheap package.
Online lenders not only make it easy to find out a suitable loan but also make the loan process simple and quick. Consequently, the loan process will become comparatively simple and you can avail the loan in a hassle free manner.
Both Jim Thio & Caro Hills are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Jim Thio has sinced written about articles on various topics from Science, Insurance and Finances. Jim Thio is a silver medalist in International Physics Olympiad.He uses his Math skills to provide free financial, business, and marketing advices in