There are many types of loans. First, determine which loan type is best for you if you want to borrow money.
You’ll soon discover that credit is an important factor when you start comparing loans. Credit is a key factor in loan approval, terms and interest rates.
We’ll discuss eight types of loans to help you get started. As you decide, we’ll discuss some things to be aware of.
Personal loans that are not secured
Personal loans can be used to pay for wedding expenses or consolidate debt. Personal loans can be unsecured loans. This means that you don’t have to put collateral such as a house or car on loan in case of default.
The best for major purchases and debt consolidation
A personal loan can help you repay high-interest credit card debt faster if you have them. You would apply for a loan equal to the amount of your credit card debt to consolidate your debt. If you are approved for the entire amount, you can use the loan funds instead of making monthly payments on your loans to pay off your credit cards.
Depending on your credit score, a personal loan could offer you a lower interest rate than your credit card. This could lead to big savings. You might find it helpful to see the average debt consolidation rate.
A personal loan might be an option if you need to finance major purchases, such as a home renovation project, or other large costs, such as moving expenses or medical bills.
Be aware of credit requirements and interest rates.
Unsecured personal loans do not require collateral. Lenders will usually look at your credit reports and credit scores to determine if you are a suitable candidate for a loan. People with better credit ratings will generally be eligible for longer loan terms.
Even if your credit score is not perfect, you may still be eligible for unsecured personal loans. You may need to shop around to ensure that the monthly payment and interest rate are affordable.
Secured personal loans
To obtain a secured personal loan, you will need to provide collateral such as a car or certificate de deposit to “secure” the loan.
Best for lower interest rates
Personal loans secured by collateral are often offered at lower interest rates than unsecured credit. Because a secured loan is less risky because an asset is backing it up, the lender might consider it less risky. A secured loan can help you save money on interest if you are willing to pledge collateral and are confident that you will repay your loan.
Be aware of potential asset loss.
If you borrow money from your collateral, you risk losing the property you used as collateral. Your lender may seize your savings or car if you fail to make your loan payments.
These are high-cost, short-term loans. They are usually due by your next payday. Payday lenders are regulated differently by each state. This means that your loan amount, fees, and repayment time may differ depending on where you live. Some states even ban payday lending.
You will need to sign a post-dated cheque or authorise the lender to withdraw the amount borrowed plus any interest and fees from your bank account to repay the loan.
Use to get emergency cash if you don’t have any other options.
Payday loans typically cost $500 or less. A payday loan can be useful if you are in financial trouble and don’t have access to credit cards or savings.
Beware of high fees.
Payday loans can have high fees, including APRs of up to 400%. According to the Federal Reserve, this is much more than personal loan APRs, which are around 10% to 11% for 24 months.
You may be eligible to get a title loan if you own your vehicle. The amount you can borrow is typically between 25% and 50% of the car’s actual value. According to the Federal Trade Commission, title loans can range from $100 to $5500. You’ll typically have to repay your loan within 15-30 days. Your car may be taken away if you fail to repay the loan.
High APRs are common for title loans. They typically run into the triple digits. Once approved, you will have to surrender your vehicle until you repay the entire amount, plus any fees.
Fast cash when you have no other options
A title loan is a way to get cash if you don’t have other options.
Be on the lookout for vehicle repossession.
You may be charged fees if you don’t pay your loan following the agreement. Your lender will keep your car title. The lender might eventually be able to take your vehicle back.
Another fast-cash borrowing option is a Pawn Shop Loan. A pawnshop will allow you to take a valuable item, such as a piece of electronic jewellery and lend money based on its value.
The terms of the loans vary depending on which pawnshop they are in. Also, interest rates can be very high. However, some states have taken steps to regulate the industry. You won’t usually get your pawned items back until you repay the loan in full. However, the time it takes to repay the loan can vary from one state to the next.
Small loans with no credit checks
According to the National Pawnbrokers Association, the average pawnshop loan was $150 in 2017. A pawn shop loan is a loan you can get if you aren’t eligible for a traditional personal loan. A pawn shop loan is not subject to credit checks and maybe riskier than a title or payday loan.
Be on the lookout for your possessions.
The pawnshop may sell your items if you fail to pay your loan on time. Additional fees may be charged for storage, insurance and renewing your loan term.
Alternative loans for payday lenders
A short-term loan can be used to pay off a payday loan offered by federal credit unions. A PAL is more affordable than payday loans. Payday alternative loans can be as low as $200 and up to $1,000. They also have a longer repayment term than payday loans, with one to six months instead of the usual few weeks that you get with a payday advance.
Best for lower interest rates
You can save money on interest if you are considering a payday loan. Federal credit unions don’t have to charge any application fees beyond the processing cost of your loan application. The maximum fee is $20. Payday loans can be expensive. They charge $15 per $100 borrowed. This could lead to an APR of up to triple digits.
Be aware of membership requirements.
You must be a member for at least one month of a federal credit cooperative to qualify for a payday loan alternative loan. You may consider another option if you cannot pay the full amount immediately and you are not a member of a credit union.
Home equity loans
A home equity loan, a type of secured loan, is where your home is used to secure a lump sum. The amount you can borrow will depend on how much equity you have in your house. This is the difference between the market value of your home and the amount you owe. You can borrow no more than 85% from the equity in your home.
The best personal loan alternative
Your interest rate for a home equity loan could be lower because you use your home as collateral. Your home equity loan can be used for many purposes, including home improvements and medical bills.
Be aware of the default.
Make sure you have enough money to cover the monthly payments before taking out a home equity mortgage. Your lender could foreclose your home if you default on your home equity loan.
Cash advances for credit cards
A cash advance is a short-term loan you can get against your credit card’s balance.
Best for cash
Some businesses don’t accept credit cards. A cash advance might be an option if you don’t have enough cash to pay for the items you need.
Beware of high interest and fees.
You won’t have the same interest rate for a cash advance despite using your credit card. The interest rate may start accruing as soon as the money is withdrawn. You’ll also likely be charged a processing fee.