If you were to ask any random person on the street what their biggest concern is, 9 out of 10, you’d get the same answer: Money. It’s what pretty much any average person is worried about, and why shouldn’t they be? The economy isn’t doing so well, and people don’t exactly get a 50% annual raise at their jobs.
At the end of the day, most will go to bed worrying about their debts and how they’re going to pay them. Eventually, most turn to loans, and while they do have their pros, there are some things you should know about them too.
These are some facts on widely recognized loan types.
Some don’t necessarily require collateral
A personal loan is a sum of money you get for yourself, and it can be divided into several types, starting with unsecured loans. In this case, the money you get isn’t backed by any collateral, which is usually some form of asset, cars, houses, and so on. The lenders that do ask you to secure the loan with collateral do it because it’s safer for them, but in unsecured loans, it is a bit riskier for the lender.
This is why you might be charged somewhat higher interest rates. The approval and the duration of the loan will depend on several factors, most importantly, your credit score.
Some must have collateral
In this case, you will need to provide collateral to back your loan application, and the catch is that the lender can seize that collateral if you fail to pay the money back. There are several popular kinds of secured loans, like a mortgage, which is the most famous example. The collateral, in this case, is your house, and if you fail to pay your mortgage, the house could be seized.
Other loans include several different options which may be used as collateral, and in any case, the interest rates here are lower than unsecured loans because the risk factor is much lower.
Short term loans come with higher interest rates
Auto title loans are a form of secured loans, but you use your car as collateral. The thing about title loans is the fact that they cost more money because they come with higher interest rates, and they’re also mostly short-term loans. So, the entire thing may be over within 6 to 12 months. You might be able to afford a car with a title loan, but you can also lose it if you miss payments.
Specific kinds of loans aren’t paid back in the form of installments
Payday loans are also secured loans, but you pay the money back on your next payday, not in the form of installments, hence the naming. Payday loans are a bit risky because they carry high-interest rates, and they’re very short term. So, you need to be careful with these. They’re optimized for emergencies when you need a couple of hundred dollars, but other than that, it’s a bad idea.
There are loans that can include all your debt in just one
The thing about debt is once you start getting into it with your credit cards or mortgage, it all starts piling up. The debt consolidation loan is great because it adds up all your debts into a single loan that you’ll be paying. It even gets better; this loan comes with a lower interest rate than usual, which will definitely make your life a lot easier. When you consolidate your debts into just one loan, you only need to pay one monthly payment.
You can get loans with bad credit
Getting a loan with a bad credit history becomes exponentially more complicated, but it is still quite doable to get one. You will need to work on improving your credit score for a few months first to show lenders you are trustworthy, but in due time you can apply and get your loan approved.
The article at Loanry.com explains that there are some pros and cons to getting a personal loan with bad credit. On the good side of things, you’ll be able to start rebuilding your credit score with the loan you get, which will make your life much easier down the line.
On the other hand, personal loans with bad credit are associated with a high-risk factor for most lenders, which means you’ll be asked to pay higher interest rates than your average bank loan. So that’s something you need to keep in mind.
There are specific entities for small business loans
This is a great loan for entrepreneurs and businesses that are just starting out. Whether you need a small business loan to expand, pay salaries, or buy stock, you can just apply for one. There are even entities in place to provide loans like this specifically, namely, the U.S. Small Business Administration. You’ll get plenty of options to choose from, which is definitely good for your business.
You can use your credit card to get loans
While this might be a bit of a risky option for a lot of people, it’s still a very viable one that could help if you’re a little low on cash. You can use your credit card at the ATM or the bank to get a short term cash advance. It’s definitely pricey, and you’ll pay high-interest rates, but it’s a great way to get out of trouble if you need some urgent money.
There are entities for veteran loans
There are several loans out there that specifically cater to veterans and their families, and they can be quite useful for those who are looking for a decent loan with an affordable interest rate that wouldn’t break the bank. In the US, most are backed by the Department of Veterans Affairs, which has lending programs specifically for cases like these.
There are dozens of loan types out there, and each comes with its pros and cons. The important thing is to read up on each to understand the requirements and what you can expect over the duration of the installments.
More importantly, you need to do a lot of digging until you find the right lender because, out of the dozens of available options out there, most will not really work for you. Ask for advice, read the fine print and really do the research carefully. In the end, the loan is supposed to help you, not make things worse!