Are you planning on borrowing money? You need to be extra careful when considering all options. Current rates, the terms of repayment, the amount you need to borrow, and your existing obligations can substantially affect your loan choice.
You will also find that there are different types of loans, each for a particular borrowing purpose.
10 Different Types of Loans You Need to Know
Here is a breakdown of the different types of loans and how to pick the ideal one for your needs.
1. Personal Loans
You can go for a personal loan whenever there’s a liquidity problem. The purpose of taking this type of loan can be anything from going on vacation, repaying an old debt, funding for the down payment of a car/house, and medical emergencies to buying big-ticket gadgets or furniture.
Remember that personal loans are provided based on the applicant’s previous relationships with the lender and credit score.
2. Payday Loans
A payday loan is made to further your salary. You might be tempted to borrow this loan to cover a sudden expense before your paycheck hits the checking account. However, these payday loans are considered predatory debt, thanks to short repayment periods, triple-digit APRs, and fees. Someone residing in Canada or in the US can now apply for a payday loan Mogo, where one can get secured/unsecured, quick approval and short-term credit on easy repayment terms, and at comparatively low interest rate, by keeping all the official paperwork and documentation to the bare minimum.
3. Vehicle Loans
Vehicle or auto loans finance the purchase of four-wheeler or two-wheeler vehicles. The former can be a new one or a used one.
The lender will identify the loan amount based on the vehicle’s on-road price. You may need to prepare a down payment to get the automobile, as the loan rarely offers 100% financing.
Remember that your vehicle could be seized if you fail to repay the vehicle loan. Always compare loan terms, APRs, and other information in every lender’s quote.
If you have great credit, you might qualify for an introductory rate of 0.00%.
4. Mortgage Loans
Also referred to as a home loan, a mortgage enables you to borrow to finance what’s likely to be the major purchase of your lifetime. There are different types of mortgages for various borrowers, including military veterans and first-time home buyers.
Like auto loans, failing to repay the mortgage could lead to foreclosure and eviction.
5. Student Loans
Most remaining and new student loans in the country are federal loans. That means they are held and handled by the Department of Education. Millions of families have relied on alternative or private student loans to bridge the gap in their school’s cost of attendance.
Note that student loan repayment is fraught with pitfalls, making it challenging for borrowers unfamiliar with their options.
6. Family Loans
In rare scenarios, you might skip the bank, online lender, or credit union and its interest rates by keeping your finances all in one place. Borrowing a family loan from the closest to you could be the ideal option. That’s especially true if you simply need a trivial amount of money and can repay it quickly.
Just bear in mind that combining money with family relationships can harm you. That is enough to scare off most people. In fact, over three in ten people rather go into debt than borrow from a loved one.
7. Pool Loans
Pool loan helps you fix up or enhance your backyard playground. Leading personal lenders always lend for this borrowing purpose. Make sure you compare terms and rates with the national or local pool installation service providers that provide financing options.
Before you borrow, take a step back to know its affordability. If you are not confident that you can afford repayment on a bigger loan for that glittering and shiny in-ground pool, you might settle for an above-ground option.
It will also help if you account for swimming pool maintenance costs, which could add up once your new pool is installed.
8. Debt Consolidation Loans
One of the different types of loans is debt consolidation loans, which enable you to roll multiple debts into one with a repayment term and new interest rate. The major advantages of debt consolidation include the following:
- switching to a preferred lender with a better customer service
- minimizing the number of debt payments, you make every month
- getting a fixed interest rate if you may have had a variable rate
- extending or shortening when you may have had a variable rate
- repaying the debt with a lower interest rate
If you are approved for a debt consolidation loan, the lender will deposit the funds into your bank account. You can utilize that money to pay off your previous debts. Depending on the bank or lender, you can borrow from $2,000 to $35,000.
9. Credit Builder Loans
Did you know that a credit builder loan is made to help you do just that? Build your credit. Whether you’re planning to repair a credit that has been less-than-remarkable or establish one, a credit builder loan offers you the chance to prove to lenders that you’re a responsible borrower by making appropriate payments on the loan.
Once approved, the loan amount is placed in a savings account. The bank holds that account. You make monthly payments on that amount. After paying it all back, you will receive the funds along with dividends or interest in some cases.
10. Small Business Loans
Are you a small business owner or an entrepreneur? You might like to borrow to fund your next venture or simply maintain operations. Like with different types of loans in this list, this loan is available from online lenders, credit unions, and banks.
You can qualify whether your business is a limited liability company or sole proprietorship in your garage, or a smaller corporation.
Whether you are buying a car, going to college, or perhaps having a more personal expense on the horizon, there are different types of loans that suit different borrowers.
Sean Martin D. Plantado, head of customer service at Digido.ph, notes that it is smart to be familiar with these loans and their finer details, including credit requirements, repayment terms, and APRs.
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