These are the traditional credit sources for families. They charge very high rates of interest and some times interest is deducted in advance. Families borrowing from these sources mortgage their assets and in many cases they have lost their assets like household vessels, gold and silver ornaments etc. Borrowers from these sources are generally families expecting huge returns from business, agriculture etc. Despite the drawbacks associated with these sources many families find them handy in the sense that ready cash is made available with little formalities and in quick time. However families must be cautious and not get lured on this account alone. With the growth in markets and economy all round and the establishment of specialized financial services, these sources have become less popular.
Mortgage Society
Loan facilities can be availed by families by mortgaging a house owned by them, if there are no encumbrances or commitment. It serves as a security to the society. Loans taken from such society can be returned in installments or in lump sum as is convenient to the family. Families needing more money for current expenses may take loans and may pay only the interest and may repay the loan installment or in lump sum when its income position improves. There are a number of agencies who also provide mortgage facilities. Agencies like savings and loan association, while offering mortgage credit, expect the borrowers to repay the loan in installments. Other mortgage companies, commercial banks and life insurance agencies may settle with either type of repayments. In some cases, these agencies also permit the families to take a second mortgage while the first mortgage is on, but charge a higher rate of interest because of the risk involved. However some agencies make money in their second mortgage contracts or through service charges or as processing costs. In determining the cost of credit, the family therefore, must be sure to take into account not only the visible interest charges, but also other invisible/undisclosed charges connected with the grant of loan.
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