Are you trying to figure out the different loan types? Read this article to learn more about the different types of loans available?
In 2018, the cumulative amount of debt Americans had exceeded $13.2 trillion. This may sound like a bad thing, but debt isn’t always necessarily a negative thing. For instance, you can take out loans to help fund important milestones in your life.
In fact, do you have one coming up? Or are you planning on making a huge life change? Then you probably need some extra financial oomph to make it.
What are the types of loans available that you can take out? Read on to find out!
Personal Loans
Personal loans are ones you can take out to fund anything, from a new TV to renovations for your home. You can borrow up to a few thousand dollars and the repayment term is medium length; you can usually take a few years to repay your loan.
There are 2 different types of personal loans: secured and unsecured. Secured requires you put down collateral but you get lower interest rates. Unsecured doesn’t have any collateral required and has higher interest rates, but you need a higher credit score to get approval.
Personal loans are considered a type of installment loan; there are commercial versions as well. Check with Bonsai Finance for more information on this type of loan.
Payday Loans
These loans are based on your employment. You borrow a small amount (such as a couple of hundred dollars) with the promise of paying off the debt with your next paycheck. This makes payday loans a very short-term loan.
These usually come with extremely high interest rates since you get cash very quickly and the required credit score isn’t very high. Some lenders don’t even check your credit score. You’re essentially paying for the convenience.
While most people recommend against this type of loan (as you can quickly get a huge cycle of debt), it really can help out in a pinch if you need some help between paychecks.
Title Loans
Do you own a car? Then you can take out something called a title loan. You can borrow up to a few thousand dollars by basically putting your vehicle title up as collateral.
Most lenders will let you borrow up to 50% of your car’s value. You then have to repay this loan within 2 to 4 weeks. If you can’t, then you risk having your car repossessed.
Like with the payday loan, the title loan is a short-term loan that carries very high interest rates. Plus, you run the risk of losing your vehicle. But again, it can be a good option if you need cash in a hurry.
Know the Types of Loans Available for You
By knowing the types of loans available to you, you’ll be able to make better financial choices. Of course, the best course of action is to be as debt-free as possible, but that’s not always feasible.
In that case, use the above knowledge to navigate the complicated world of finance so you come out on top.
If you found this article on different types of loans useful, then make sure you read our other blog posts too!
