I have shared 12 different types of loans. You can check all these loans of different types. I have shared loans from personal, credit, payday, and there several types of loans.
As you get into your loan endeavors, it is important to note that not all loans are the same. They do not all apply to your specific needs and they also carry certain different rules, terms and conditions that you would need to check out, compare, rule out and decide which is best for you. It is great when the loans you need are suited to fit your specifications. Although you might not necessarily find one that is a perfect cut, you might find one that is close to perfection. This is why we would go through eight different types of loans you should know before starting your loaning journey.
12 Different type of Loans – Read Now
So, you need a loan. That much is established. How do you get one? Where do you get one? Those are the next likely questions, and you can find all the answers in this piece of you follow along. First, let us get to the basics.
What is a loan? A loan is money borrowed to serve a certain purpose(s), with an agreement to be repaid over a period of time. The recipient of this money is called the “borrower,” while the party giving out this money is referred to as the “lender.” Depending on the important variables amount, purpose, credit score and other unique requirements, the borrower (you) has a vast pool of loan choices at your disposal.
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To make the best use of these, you must be aware of each one of these options and how best they resonate with your needs.To figure this out, you should conduct proper research on the options you find, and break down their repayment into months to see how bearable the costs will be for you. Ensure that this includes the interests incurred. There are many types of loans in the financial sector, each with its own features. Here the most prominent ones for your consideration:
Personal Loans
They are a go-to for many borrowers because of the versatility of purpose. Most financial institutions that offer loan services give out personal loans. They are typically categorized as unsecured loans and come with limited amounts, but they are great for serving emergency purposes or small personal expenses.
To stand a good chance of getting your personal loan application approved, many lenders require that you have an average-to-good credit score. A borrower is better off taking personal loans in small amounts, repayable short-term without any hassles. This ensures you access to bigger loans in the future while boosting your credit score. Speaking in terms of interest rates, the Federal Reserve puts the average rate of interest on personal loans at 10-12%.
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This acknowledges the fact that the rates may be higher or lower than this, depending on the lender and the amount taken. Other eligibility requirements include a declaration of monthly and annual income and proof of it. Personal loans do not take too long to be processed and approved/denied. Once the necessary investigation is completed, your loan can be disbursed in even minutes.
Credit Card Loans
You take a credit card loan every time you use your credit card, and timely repayments unlock higher loan limits that you can take with interest. Credit card companies have held it down in providing small cash advances to people for so long, and they are leading lenders in the money market for this reason.
As is the case with personal loans, credit score plays an important loan in qualifying a borrower for credit card loans, and in small amounts between $300 and $10,000. It is noteworthy that these loans come at high-interest rates that begin to accrue sometimes as early as the second you make a withdrawal.
Credit cards are accepted worldwide.
Payday Loans
These are check-based cash advances that have a reputation for putting borrowers in vicious cycles of never-ending debt as a result of interest rates as high as 400% per annum. Although designed to give out small loans in case of emergencies, it is not advisable to take these loans too often. You can explore other options available to you, based on your credit score.
Home Equity Loans
As a home owner, you have access to loans that use your home’s equity as collateral until it is fully repaid. To calculate the equity of your home, subtract the value of your home from the amount you intend to borrow, and there you have it. It is recommended to use this loan for home-related expenses, but not compulsory. A perk of home equity loans is that they come with reasonable interest rates and are usually very long term (up to twenty years).
Payday Loans
If this is not banned in your state, then you would need to know the regulations for your own state because states regulate such lenders differently. Payday loans are high-cost, short-term loans that are due for payment whenever your next payday is. To pay back the loan, you basically have to write a post-dated check or give authority to the lender to make an automatic withdrawal of the loan amount and any other interest or fees from your bank account.
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These loans come in handy for emergency-cash situations as they are usually $500 or less. When taking such loans, you should look out for high fees that might be embedded or attached to the loans. Personal loans are quite common. They are usually sought out to cater to many reasons from consolidating debt to the expenses of your big event. These personal loans can come in two ways:
Unsecured Personal Loans
Ever heard of collateral? Putting down your valuables; house, car, land and the like, which you may end up losing if you default on your payments, to secure a loan. When talking about Unsecure personal loans, this simply means that you would not be putting down collateral to get such loans. This is really good for when you want to make major purchases and debt consolidation. Depending on your credit score, personal loans can offer you a lower interest rate than your credit card. Lower rates could equal large savings.
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Personal loans could also be great if you have medical bills to pay off or you need to renovate your home. For this type of loans, you would need to look out for interest rates and credit requirements. You may be able to apply for an unsecured personal loan if you have fair to bad credit, but you may want to compare different lender platforms and their rates and terms to make sure they fit your own budget. Since this kind of loan does not require collateral, the lender platform usually looks at your credit scores and credit reports to enable them to decide if you are a good candidate for the loan. This means, the better your credit score, the better your loan terms and rates.
Secure Personal Loans
Unlike the Unsecure loan where you do not need collateral, for this type of loan, you would need to submit some form of collateral, whether it is your car, house or some other property. This type of loans could help you save money on interest if you do not mind the collateral rule. Since you would be pledging collateral; lenders usually offer lower interest rates as they find it less risky for them because your default means you lose your pledged property.
This keeps a lot of borrowers on their toes and ensures they payback. Your loss of assets is a major thing to watch out for when dealing with this kind of loan. If you are not sure of your means to pay back the loan you are looking to take, do not go for this kind of personal loan or any other loan for that matter.
Title Loans
Title loans can range from $100 to $5,500 following the Federal Trade Commission. The repayment of such a loan should be done within 15 to 30 days. For this type of loan, you can borrow between 25% and 50% of your car’s value if you own one. This is called a car title loan and any default in repayment can lead to the repossession of your car just like collateral in a secure personal loan.
Once your application is approved for this loan, you will be required to hand over your car title until full repayment is made. Title loans are known to carry high APRs in the triple digits, so it’s best to look out for that as well as the possible repossession of your car due to repayment default. Title loans are great for fast funds.
Pawnshop Loans
This is one of the fast-cash borrowing options that can come in handy if you find yourself in a pinch. Loan terms differ depending on the pawnshop and there is the possibility of the interest rate being high. It requires you as the borrower to submit an item of value to the pawnshop and borrow money based on the value of your item.
Items could be electronic gadgets or even jewellery. This type of loan is good for small loan amounts that require no credit check. Just like the title loans and secure personal loans, you would need to look out for losing your item to the lender. In this case, the pawnshop can sell your possessions if you default.
Home Equity Loans
This loan requires you to submit your home as collateral to secure your loan. The amount you can borrow depends on the home’s equity or the difference between how much you owe on your home and your home’s market value. This loan is best for personal loan alternatives and since you are using your house as a pledge, interest rates with this kind of loan may be lower than an unsecured personal loan. You cannot borrow more than 85% of the equity you have in your home. Make careful considerations before this loan is taken, to be sure you have proper plans to pay within your budget to avoid losing your home.
Payday Alternative Loans
These types of loans are best for lower interest rates. Before seeking out an ordinary payday loan, check if you are eligible for a payday alternative loan first. This can help you save money on interest.
This type of loan is a short-term loan offered by some Federal credit unions. The loan amounts range from $200 to $1,000 and your repayment term is typically longer; 1 to 6 months instead of the usual few weeks with a payday loan. Although it seems great, you should still watch out for membership requirements before throwing all your other options away.
Credit Card Cash Advances
A cash advance may be great for you if you need to pay for something and you do not have enough cash on you; since not every business has the credit card option. This is a short-term loan that you take against your credit card’s available balance. Before taking this, be sure to look out for high interest and fees.
Interests may start accruing as soon as the money is withdrawn. There is also the likelihood that you would have to pay a processing fee. Always set your budget before taking out any loan. Ensure you have the ability and capacity to pay back your desired loan before even applying. This would help you avoid unnecessary troubles and extra expenses.
