If you want to borrow money in the form of loans, there are various loans available in the market. You have to choose the best suitable option according to your circumstances and payback capacity.
Before applying for any loan, you should consider two things, i.e. why you need money and the amount required.
Once you are clear with these two things, you can compare various loans in terms of their loan amount, interest rates and payback terms and conditions. Post comparison, you can choose the best option for you.
All loans are different to one another and are not equal such as bad credit loans are different from payday loans, and personal loans are different from home equity loans.
The plethora of options for borrowers
Every loan caters to a different situation. For any loan approval, your credit score is an important factor considered by all the banks and lenders. Your loan amount is approved on the basis of how good your credit rating is.
There are 8 types of loans, and here is the list to guide you on every loan. Going through these loans may help you decide your type of loan.
Types of loans available in the market
There are various loans available that borrowers can use to fulfil their financial needs. You can check the below-mentioned loan types.
Unsecured personal loans
The most common form of loan is the personal loan. They are used for multiple purposes, such as a personal loan for an apartment, paying off medical bills, taking care of wedding expenses, buying a new car, paying off other debts etc.
Personal loans are categorized in the following way: Unsecured personal loans and secured personal loans. Unsecured personal loans have no collateral, such as a home or a car.
This acts as an advantage as you do not have to lose out on your asset in case you default on your loan.
An unsecured personal loan may help you waive your high-interest credit card debt. You can sync your loan with your credit card debt and apply for the amount that you need to pay off the debt.
If you are borrowing a personal loan for your credit card, the loan may likely offer you a lower interest rate that could lead to an increase in your savings.
A personal loan is also helpful in financing your big purchases such as buying a car, home improvement or paying off your medical bills.
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Secured personal loans
Unlike unsecured personal loans, secured personal loans require collateral in case of loan approval. You can offer any collateral such as a house, car or any certificate of deposit. These loans also work as emergency loans for the unemployed.
Secured personal loans involve a lower interest rate as there is collateral involved. The lenders may be slightly relaxed in offering a secured loan as your asset backs it up. You can save your interest money on your loan if you are confident in paying back the loan on time. But there is always a risk of losing out on your collateral if you are unable to pay back your loan.
These are also termed instant loans and are available in a very short period of time. Payday loans are high-cost loans involving high-interest rates due to their easy availability.
They are short term loans with easy availability. Payday loans are banned in some places, whereas someplace accepts these loans happily. There may be different conditions attached to these loans for different people.
In case of any emergency, payday loans are the best option due to their quick availability. In case of no access to any form of credit or money, you can always turn up to lenders for these loans.
There are certain benefits to these loans, but there are drawbacks too, i.e. very high-interest rates.
You are entitled to title loans in case you own a car. Usually, you are offered between 25-50% of your car’s value, and the amount varies from $100 to $5,500. If you cannot pay back the loan on time, the lender may repossess your car.
If you have received approval for title loans, you have to hand over your car in exchange for the loan amount. The car remains with the lender until the total loan amount is paid back. Usually, these title loans involve high APRs.
In case of an emergency, if you need money, you can opt for title loans with the condition of owning a car. A title loan can help you get out of your emergency situation.
It is important to remember that in case of non-payment, the lenders can possess the title for your car. Be aware and pay back the amount on time.
Pawn shop loans
Pawnshop loans also fall in the category of instant loans. You can get access to the loan amount by taking any critical asset such as jewellery or an electronic item, and you will be granted the loan amount. You will receive the amount based on the value of your item.
Like other quick loans, there may be high-interest rates involved. Every place has different timelines for paying back the loan, and it depends from state to state. Until you pay back the full loan amount, your pawned item won’t be returned by the lender.
The advantage to these loans is that there is no credit check for offering these loans. If you have a bad credit score and are not eligible for any other loan, then you can always consider the option of pawnshop loans. These loans are less risky as compared to other loans.
The only loss that you may face in these loans is the loss of your pawned item only when you are unable to pay back the loan in the stipulated time.
Payday alternative loans
A payday alternative is considered to be more effective than a standard payday loan. Some federal credit unions offer payday loans.
These are also termed short term loans. Another advantage to these loans is the payback time. Unlike typical payday loans, you get more time in payday alternative loans ranging from one to six months.
In a payday loan, you usually get a timeline of a few weeks. Opting for a payday alternative saves money on your interest rate.
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Home equity loans
Home equity loans involve collateral for their approval. You have to put your home as collateral to get a home equity loan approval. The equity you have in your home is directly proportional to the amount that you want to borrow.
The greater equity means more amount will be offered. You may put your home as collateral to get the lump sum amount. The borrowing amount typically does not exceed more than 85% of your home equity.
Home equity loans are considered an alternative to unsecured personal loans. Collateral being involved in home equity may make it cheaper than any unsecured loans.
Before considering a home equity loan, ensure to put your monthly budgets in place as a default on your loan may lead to your foreclosure by the lender.
There are many loan options available in the market. You have to decide according to your financial situation. Once you decide to avail any loan, make sure to pay back the loan on time.