At times, as much as you would like to save money instead of borrowing, it’s just not possible. This is especially true for emergency situations such as medical needs or large expenses, like mortgages and college fees.
When you don’t have enough time to save or simply can’t save enough for your needs, what you do is take out a loan.
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The thing is, though, not all loans are made equal. If you currently need to borrow money, then it’s imperative that you understand the different types of loans available. When you start comparing various loans, you’ll learn that your credit score plays a huge role in the type of loan you qualify for, the amount of money you get, as well as the interest rate.
To help you get started, we’re going to go through different types of loans and what they have to offer. Read on to find out the best type of loan for your situation.
Personal Loans
If you need a loan fast, personal loans are by far some of the most popular types of loans. One of the best things about these types of loans is that you can use them for virtually anything. From emergencies to vacations, medical treatments, weddings, debt consolidations, home renovations, and more.
Personal loans come in two categories, which are secured and unsecured personal loans. Secured loans are backed up by collateral, meaning you have to sign up an asset the lender could collect if you fail to make full payments. Collateral could be anything from your car to your savings account.
Unsecured loans don’t require any kind of collateral. They’re also known as signature loans because the only thing that backs them up is the signature. Unlike secured loans, these are more expensive, and you need a high credit score since the lender will be taking more of the risks.
Student Loans
Student loans have helped millions of Americans pay for their tuition and fees at various accredited schools in the country. In general, it’s not possible to use student loans to pay for informal classes or other specific types of education. Student loans also come in two categories, which are private and federal.
Federal student loans are more popular as they feature more benefits and offer more protection. However, they charge higher interest rates compared to private student loans. You may be able to get a better rate for private student loans if you have a good credit score.
Auto Loans
Auto loans are exactly what they sound like. If you’re looking to purchase a car, this is the type of loan you apply for, and the car itself will serve as the collateral. Failure to pay the loan means your car will be repossessed.
Essentially, you can get an auto loan from banks, credit unions, online lenders, and possibly dealerships too. Some dealership loans can be much more expensive, though, so it’s vital that you do thorough research before choosing an appropriate lender.
Mortgage Loans
Mortgage loans are designed to finance the purchase of a house or real estate property. The most common mortgage lenders are banks and credit unions, but there are other options.
For instance, there are USDA loans for low-income earners in rural areas. There are also VA loans for veterans and active-duty service members, as well as FHA loans for people with low or moderate incomes.
Credit Builder Loans
Credit builder loans are exactly what they sound like. They’re short-term loans that will help you build your credit back up so you can qualify for larger loans. These are some of the easiest to qualify for since, technically, they’re meant for people with low credit scores.
With credit builder loans, you don’t get the cash up front as you would a regular loan. Once you apply, you’ll make fixed monthly payments for a designated amount of time, and once you are done paying the full amount, you then receive the funds. It’s almost like a savings account when you withdraw the cash after saving a stipulated amount.
Debt Consolidation Loans
A debt consolidation loan will allow you to streamline your other loans. You’ll be taking a loan to pay off other loans, which will leave you with one loan to pay off. For instance, if you’re currently paying off a high-interest personal loan or credit card loan, a consolidation loan can be a lifesaver.
Once you pay off other loans, the consolidation loan will have much lower interest. This can save you a lot of money and stress in the long run.
Payday Loans
Payday loans are very popular and last until the next paycheck. These types of loans are not credit-based, which means you neither need good credit nor collateral. However, these loans happen to be some of the most brutal as they’re predatory in nature.
To begin with, these loans charge incredibly high finance fees. Additionally, the lenders allow the loans to roll over to the next paycheck, but there are always other fees involved. This means it’s very easy for you to find yourself in a vicious cycle where you keep rolling the loans over but never really paying it off completely.
Small Business Loans
There are many types of small business loans, including term loans, equipment loans, working capital loans, and the popular SBA or Small Business Administration loans. These types of loans are essentially designed for small businesses of up to 300 employees.
These loans are very common, given that there are over 30 million small businesses in the US. Even if they carry more qualification requirements, they’re well worth it as they can help you scale and grow your business exponentially.
Title Loans
Title loans involve pledging your vehicle as collateral. The amount of loan you qualify for will highly depend on the type and value of your car. Most of the time, lenders give about 25% to 50% of the car value and charge a monthly fee of about 25%.
This alone makes title loans some of the most expensive financing options because this would be about a 300% APR rate. These are different from auto loans because they are short-term, and you give the title of your car as collateral.
Pawn Shop Loans
These are quick loans as you get the funds almost immediately. All you have to do is take an item of value to a pawn shop and borrow money based on its value. The loan terms will vary with the pawnshop owner, but interest rates can be quite high.
Different Types of Loans: Weighing All Options
If you have been wondering what type of loan you should get, these are the different types of loans available in the market. Some will be easier and faster to qualify for, such as payday, personal, title, and pawnshop loans. However, others will take longer and will require a good credit score.
Regardless of the type of loan you need, ensure you do thorough research to get the best lenders and the best interest rates. Beyond that, if you’ve found this article informative, we have more like it in our blog section.
