A Beginner’s Guide To Different Types Of Loans – The world of online loans can seem a little daunting, especially if it’s your first time applying for one. There’s so much jargon surrounding loans that it can be hard to know what you’re doing. The difference between certain kinds of loans also isn’t always easy to spot, and it’s important to know this information if you’re going to be successful in applying for a loan.
If you want to take out a loan, then having as much knowledge as you can garner is crucial. It’s not just about the jargon; it’s also understanding the terms and repayment plans on offer for various kinds of loans, as well as whether or not the provider is scrupulous. We’re here to help. Here’s our beginner’s guide to different types of loans and whether or not you should consider taking them out.
There are various different kinds of short-term loans. Usually, these loans will have a rather short period of time in which to repay them (hence “short-term”) and will also have fairly high interest rates to reflect their duration. Here are some of the short-term loans you may encounter.
You might have heard some bad press about payday loans, but the fact is that a lot of it is mostly undeserved. Used correctly, payday loans can get you out of a tight spot. However, it is fair to say that the circumstances in which you should use payday loans are somewhat limited. For example, you should never take one out if you are in long-term financial difficulty or if you don’t think you will be able to pay it back.
If you get a cash advance from a lender, it will often take the form of a short-term loan. There could be many different types of cash advance a lender gives to you. In some instances, a cash advance is a certain portion of a loan granted to you ahead of time. In others, it’ll be a different kind of short-term loan. Either way, this is an advance with a brief duration that you should consider paying back quickly.
Invoice loans tend to be done on a business basis rather than personally. If a client is unable to pay an invoice, then the company providing the service will often allow them to pay the invoice in instalments. These loans are usually short-term as the company would encounter significant financial difficulties if the invoice took too long to repay.
Most people applying for a loan will probably want a long-term borrowing plan. These loans tend to be used for projects like DIY or weddings, and they’re also used to help borrowers out of longer-term financial straits. Here are some of the long-term loan types you might consider.
Unsecured vs. secured
These aren’t types of loans so much as categories into which loans fall. Unsecured loans are cash provided to you without any collateral to back it up. Secured loans, by contrast, make you “secure” something – a vehicle, for instance, or a property – against the value of the loan. A mortgage is a secured loan, as is vehicle financing.
Debt consolidation loans
You might have heard about debt consolidation loans if you’ve done your research into lending. These loans are specifically designed to help you pay off debt. They’ll usually have more favourable repayment plans because they’re created for people who already find themselves in debt. This isn’t always the case, though, so it’s worth reading the terms of your loan to see what you’ll be expected to do. These loans may also have significantly more stringent acceptance terms.
Vehicle loans and auto financing
Cars and other vehicles can often be costly. To reflect this, vehicle loans and auto financing will usually have longer terms, often between 3 and 7 years. Many lenders will provide this kind of loan; it’s extremely common for people to need financing for their vehicle, given the often prohibitively high cost of these items.
A mortgage is a type of long-term secured loan. You sign up to pay a monthly amount on your mortgage, with missed payments potentially secured against the property that’s mortgaged. Don’t worry, though; many lenders, including banks and building societies, will be lenient with you when it comes to missed payments, and will often be willing to negotiate with you in order to ensure that the mortgage payments get back on track.
A family loan usually isn’t an official way to borrow money, but it can be a helpful boon nonetheless. This is exactly what it sounds like: you borrow money from a family member willing to lend it to you. Usually, repayment terms are agreed between you and the family member, but sometimes, a third party is brought in to mediate and ensure that everything proceeds fairly. Some believe that lending money to family members is unacceptably risky, but after all, there may be times when it’s your only option.
Credit building loans
This is one of the only types of loan with which you won’t need to have a good credit rating. The purpose of a credit building loan is, as you might expect, to help you build credit if you have a negative rating. You don’t receive the loan amount upfront; instead, you must make monthly payments, and you’ll get the money back at the conclusion of the loan’s term. Since this loan is specifically designed to help you build your credit rating, it has more unusual terms than other loans.
We hope this guide on some of the different loans out there has been helpful. It’s by no means exhaustive, so make sure you talk to your provider about your options!
Also Read: 7 Perks of Paying Bills From Your Phone
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