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Financing Options for Large Purchases - Essay Example

Summary
This essay discusses financing options for large purchases. The option can be any financial instrument used to buy or sell something according to a set of rules & obligation defined earlier. It is like a contract between two parties written for engaging in a transaction. …
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Financing Options for Large Purchases
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Extract of sample "Financing Options for Large Purchases"

Financing Options for Large Purchases The financing option is a source from where one can seek some financial help for his/her upcoming future or possible need for some finance. The need can be of any kind, it can be a car purchase or a car lease & it may also be a big purchase like house or some other fixed asset. The option can be any financial instrument used to buy or sell something according to a set of rules & obligation defined earlier. It is like a contract between two parties written for engaging in a transaction. The selling party must fulfill all the obligations written in the contract for the transaction while the buyers must also engage themselves in the particular transaction. Different financing options have different prices depending upon the value of the asset which is to be bought or sold. Usually the values of asset are currency or bonds or it may be future contracts along with a premium package till the expiry of the contract. When the option is exercised within due time, the other party collects its premium from the buyer & deliver the asset to the buyer. If the option is not fulfilled into the due time of expiry, the contract is considered void. There are such types of options too in which the actual buyer of an asset sell it to someone else, this is known as the exchange of option. Usually, all kinds of financial options are provided by finance corporations or by investment banks. Whenever there is a contract held between two parties considering any of the financial options, the terms of the option are required to write down. It must always mention the quantity & type of asset to be purchased & at what value it is going to be sold out. The expiry date is also mentioned in the contract & also some other terms & conditions upon which the whole contract is written, like the premium amount, the interest rate etc. The options are mainly of two types, the exchange-traded options which have a set of pre-defined contracts like stock options, bond options, index options etc, & the over the counter option which is not on an exchange & is simply between two parties. There can be as many terms & conditions in the latter one as both the parties want, depending upon their particular situation & the kind of valuable asset. There are also employee stock options typically in US which are in a form of an incentive from a company to its employees (PETCHERS. 2003). Purchasing of a house or a car or something big like these always require some time to stop & think deeply what & which kind of financial option will suit according to the current situation anyone is facing. They are a real necessity & thus cannot be avoided. On the other hand, one must look into his/her budget & the actual need for that very item. One should not get tempted from the luxurious items which are out of range & should not get over spend. The one who has the money should be the one to decide what option will better suit him/her & what will not. At what interest rate can anyone afford the installments & thus before signing over any contract the details must be well read by the purchaser. Personal finances such as house, car, large electronic appliances etc need a lot of financial planning with respect to the budget & savings & considering future financial risks. Several ways to earn right amount of financial assistance at right time include insurance policies, investments in some business or in stock market, social security plans & benefits, saving accounts & consumer loans etc. When looking for financing of large purchases, the easiest & the best way is the exchange-trade option, which is always standardized & the set of rules is pre-defined very clearly so that there would be no ambiguity remains in the contract. There can be installments procedure in which there are 3 months, 6 months or sometimes a 9 month installment can be made in order to cover the whole price of the asset. As there has been throughout computerized system now, the prices are tracked so the contract can be clear & visible enough for the transaction. The most beneficial part of the contract is that both the parties remain unknown to each other & the whole dealing is done through a third party or an investment bank. The general market regulations are applied in such cases in order to make the deal very transparent. There are also entrepreneur companies which provide such facilities to the individuals & provide long term debts for financing their needs. In such conditions, some other valuable asset is kept at the seller side with the conditions that whenever the whole loan is paid the asset will be returned to the actual purchaser. There are also adjustable rate mortgages & fixed rate mortgages for new home buyers. The customers who make the use of adjustable rate mortgages have to pay a starting rate of 2.5% less than the fixed rate. There are also affordable monthly payments for a low or mediocre earner, but it must be kept in mind that mortgages are to be held for ten to thirty years; the longer the time the shorter would be the rate per installment or vice versa. The fixed rate mortgages remain at fixed interest rate throughout the mortgage. Hence some people prefer it upon adjustable rate mortgages (Black Enterprise Nov 1989). Anyone can use any kind of financial option in accordance with his/her comfort, however some reservations must not be over looked like any hesitation about the contract or asking about the hidden payments like insurance or maintenance which are often not very clear at the time of writing. Also review the warranty policy clearly that it does not be of too short period so that your price must be equally paid off. Also take a test or try the product you are going to purchase, it will make its efficiency visible to you. By taking such considerations, one better gets the best product or the best option for him/her. (My Money Management: Large Purchases) Bibliography My Money Management: Large Purchases retrieved on 10/12/2011 Black Enterprise Nov 1989 Top of Form PETCHERS, N. (2003). Combined heating, cooling & power handbook technologies & applications : an integrated approach to energy resource optimization. Lilburn, GA, Fairmont Press. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=79472. Bottom of Form Read More
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