There are various times in our personal lives and businesses when we need additional funding. There are many types of loans, but all involve fees and interest that you have to pay on the money which you borrow. These fees and interest rates vary widely, so it is really important to shop around and find out how each loan works and which one is right for you.
In this article, we will explain the main types of loan and how to determine which kind of loan you need.
Payday Loans
The first common type of loan is a payday loan which is called this because it is designed to help people make it to their next payday. There are many of us who find ourselves a little short once in a while and a payday loan enables you to make ends meet just for a couple of weeks before your next paycheck comes in.
Borrowers can obtain as much as six months’ salary through a payday loan. To obtain a payday loan, borrowers must be at least 18 years old and need to earn a certain salary. The minimum salary level required by payday loan lenders is different from lender to lender so it is always worth shopping around if you are turned down for a loan by the first lender that you apply to.
It is worth noting that the interest rates on payday loans can be the highest amongst any type of loan so it is vital that you understand all the terms and conditions before you sign up for any payday loan.
Secured Personal Loans
Personal loans can be a great way to access funds at the moment when you need them and then repay them at a later time. In order to obtain a secured personal loan you will usually have to use an asset like your car to put up as collateral to secure the loan.
Securing the loan by putting up your property as collateral makes the arrangement less risky for the lender. As a result, this will often mean that you will have to pay a much lower interest rate and this can significantly reduce the total cost of the loan.
The major drawback of this type of loan, however, is that if you can’t make the loan repayments, the lender may claim the asset to cover their loss on the loan. This type of loan can be a great fit when it comes to something like buying a car. Car loans are usually secured loans that actually let you offer the car that you’re buying as its own security.
Unsecured Personal Loans
With an unsecured personal loan, you do not need to put up anything as collateral. When you apply for an unsecured personal loan, you simply review the bank’s interest rates and fees on the loan and then you then decide how long you want the loan to last. The repayments are then set at regular intervals for that time which makes your budgeting nice and simple.
Unsecured personal loans are a straightforward kind of loan that can be a good option if you want to borrow money, but don’t want to offer one of your personal assets as security. Unsecured loans are tailored to your specific borrowing needs and are regularly used for a whole range of activities that involve a one-off cost such as buying a car, booking a vacation or flights, or consolidating multiple debts into one.
Lines of Credit
A line of credit is a type of loan that doesn’t have an end date and that lets you use and repay funds as you need them. A line of credit is a little like a credit card without having the actual card. Credit lines allow you to access funds up to a set credit limit that is predetermined between the borrow and the lender.
Once set up, it is really simple to transfer money from the loan into your account and you only have to pay interest on what you’ve used and not on the whole credit limit. With access to funds when you need them and which are usually available with no set time period, a line of credit gives you real flexibility. This makes a line of credit a really useful loan for long term projects.
There are many different types of loan available that can help us in various aspects of our lives. Loans are great for helping with everyday costs of living, for making big purchases and for funding long-term projects. If you are considering taking out a loan, research the different options laid out in this article and you will be able to find a great loan for your needs.
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