There are many types of loans available depending on your situation. You can take out a loan to fund your business, buy a house, complete your education, or any other number of reasons. Your credit becomes important when you’re considering taking any kind of loan. It is a determining factor in the interest rate and the loan terms. According to Debt.org, every loan is governed by guidelines provided by the government in order to protect you from extortionary practices like very high interest rates.
Saving up to make large purchases is always the top recommendation, but that’s not always practical. Even having a large amount of savings is often not enough for you to be able to afford large expenses like a house, car, college education and more. There are also expenses like unexpected medical bills due to emergencies that one cannot plan and save up for. This is where loans come in handy. To get you started, here are some of the most common types of loans.
Personal loans can be used for almost anything. Those with credit card debt tend to go for either secured or unsecured personal loans. If you opt for an unsecured personal loan, you won’t have to provide any collateral. These might also have higher interest rates and the rate depends on your credit history. You can get a personal loan for a few hundred or thousand dollars with a repayment period that can range from two to five years. These loans are usually issued within a few days.
Student loans are opted by those who need to cover the cost of higher education. Federal student loans typically have lower interest rates than private student loans. Subsidized federal student loans are available to those who can provide proof of financial need. Loan forgiveness might also be an option with federal loans, but not with private loans. Since young students with hardly any credit history will be mainly applying for student loans, it is important to research the options available to find the one that suits you best.
Title loans are loans where you can use your vehicle as collateral. You hand over your vehicle’s title until you pay back the loan. You can find the amount you will be able to borrow with the help of a title loan calculator from this site, but it is usually around 25% to 50% of your vehicle’s value. These loans are for short periods and you will most likely have to repay them in around a month. A failure of repayment might result in your vehicle being repossessed.
Small business loans
Small business loans are usually applied for by those who are looking to either establish a new business or expand their existing business. Most banks issue small business loans. You can also get this loan from the Small Business Administration (SBA). You will need to submit your business plans for review as a part of the loan application process — a step that can be exhausting. Interest rates are negotiable and these loans can be for five years to as long as 25 years.
As the name suggests, credit-builder loans will help you build credit. These are usually for people with limited or zero credit which makes them an affordable option for young people to start building credit. Credit-builder loans are usually small and short-term and you don’t need to have good credit to qualify for one.
Home equity loans
If your house is worth more than you owe on it, you can borrow against that equity. Home equity loans will use your home as collateral. The interest rates are usually lower than the one paid on credit cards. These loans can be used for big expenses like home renovations, medical bills, credit card debt, paying off student loans and more. You can also get home equity lines of credit (HELOCs) instead which have variable interest rates and offer flexible payment schedules.
Payday loans can be taken out to manage the gap between one paycheck to the next. These loans are short-term with high interest rates. If you’re living paycheck to paycheck, these loans might come in handy, but ensure that you’re cautious, as the nature of payday loans can attract loan scams.
You can take an auto loan to buy a vehicle. The collateral for these loans is the vehicle itself and failure to repay might result in it getting repossessed by the lender. The repayment periods are usually between three to seven years.
If you’re considering buying a land, you might want to consider a land loan. There are two types of land loans – improved and unimproved land loans. Improved land loans are for those plots of land already equipped with facilities like power lines, septic tanks or a drive and are ready to be built on. Unimproved land loans are for plots that might be inaccessible and might need some work before being used for anything. Compared to other property loans, land loans are considered riskier by lenders and so might have higher interest rates and stricter credit requirements.
Apart from loans, other options for financing are also available. Credit cards are one of the most easy ways to fund expenses but they might not be ideal for large expenses. You can also get a line of credit. Home equity lines of credit (HELOCs) mentioned earlier is one such credit. All of these options, just like loans, need some researching before you actually take it to ensure that you aren’t caught up in an extortionary situation.
If you’re opting for loans, ensure that you understand the agreement terms completely. Be aware of whether the loan is tied to any of your personal belongings and know all the repayment terms. As mentioned earlier, the failure to repay some loans might lead to your belongings getting possessed. Ask for clarifications and adjustments wherever necessary. These steps and precautions are necessary so you don’t land in a difficult financial situation later on in your loan journey.