Expected expenses are a breeze to budget for each month. Things like rent, utilities, and groceries take your focus because of their regularity but also their importance. Stop paying rent, and you won’t have a roof over your head for much longer.
Although these regular expenses are crucial features of any budget, they aren’t the only things you have to worry about. There are plenty of unexpected bills that arrive in your mailbox, regardless of your financial situation.
Closed-end financial products help you cover these unavoidable, unpredictable, and urgent expenses when your savings are low.
What Are Closed-End Financial Products?
A closed-end financial product is another term for a fixed loan that provides the borrower with a pre-determined amount of money in full. This amount, plus fees and interest, must be paid back by a specific date.
Once the borrower repays what they owe, the account closes permanently. The only way for the borrower to access more money is by applying for another loan.
Closed-end financial products come in all shapes and sizes. Some are short term, small dollar loans the provide fewer than $3,000 if you’re approved. Others end up being long term loans that grant far more than that.
Some require the security of collateral, which means you must provide an asset to back your loan. If something prevents you from repaying your loan, your lender may take this asset to recoup their losses.
Unsecured loans do not require collateral. Their rates and terms may reflect this as lenders must offset the increased risk they take on by granting you funds without it.
How Are These Products Different from Open-Ended Loans?
These terms and conditions make them different from open-ended financial products. An open-ended financial product like a credit card or line of credit comes with a credit limit from which the borrower may withdraw money as needed.
The borrower must repay what they’ve used, plus interest and fees. Once they have, they can withdraw up to their limit again, which means open-ended products are a revolving loan.
When Should You Use Closed-End Financial Products?
The answer depends on the type of closed-end loan. In terms of direct lender payday loans and direct lender installment loans, these financial products are reserved for unexpected emergencies.
In an emergency, financial advisors always recommend using savings or making more money before using these direct lender loans. However, you don’t always have enough savings to cover a bill. And while you can always boost your income, it may take too long to generate the cash you need.
How to Find the Right Option for You
With so many online options available today, you may feel overwhelmed with your choice. A lot rests on this decision, as the rates and terms you agree to dictate whether a loan is affordable.
To make sure you’re making the right choice, always do the following before signing a contract:
- Compare customer reviewers, sticking to companies with excellent ratings
- Shop around for rates and terms
- Read the full terms and conditions to spot any hidden fees
- Know your rights as a borrower
- Recognize the sign of a scam, including predatory fees and practices
- Check your budget to see if you can afford repayments
In an emergency, you may not feel as though you have time to devote to this step, but never skip it. These tips will help you find the best closed-end financial product for your needs.