Types Of Loans You Need To Know About
Even if you have a bad or poor credit history, you are also eligible for financing, but you are more likely to face less favorable interest rates.
Almost every person from time to time faces financial difficulties and needs money. This can be anything from medical treatment to consolidating existing debt, paying rent, or making an emergency purchase. A loan is the easiest and most convenient way to get financing in a difficult life situation. However, which option should you choose?
In this article, we will look at the most popular types of loans for all life situations, after which you can choose the most suitable option for you.
What Is A Loan?
Loan is a certain amount of money that the lender gives to the borrower at a certain percentage for a certain period. In order to qualify for the loan, the borrower must also meet certain eligibility criteria which may vary by state of residence.
Secured VS Unsecured Loans
Before moving on to different types of loans, you should understand the difference between secured and unsecured loans. As the name implies, a secured loan requires collateral in order for your funding application to be approved. The collateral helps borrowers to get a better loan offer with low interest rates. However, in case of non-payment of the debt, the borrower may lose the collateral.
An unsecured loan, in contrast, does not require collateral to be approved. Thus, the borrower does not have to risk his property. However, unsecured loans are often riskier for lenders and carry higher interest rates.
Read more: Unsecured Payday Loans with No Collateral
Main Types Of Loans You Need To Know About
- Personal Loan. This loan is most often unsecured and does not require collateral and can be used for any personal needs of borrowers. Most often, the repayment period of a Personal Loan varies from 1 to 5 years, depending on the amount of the loan. Usually, borrowers can get from $1,000 to $100,000. Interest rates can vary depending on a large number of factors, the most important of which is credit history. The better the credit the more favorable interest rates you will be able to get. With a Personal Loan you will most likely get between 5.95% and 35.99%.
- Student Loan. As the name suggests, this loan is designed to help borrowers cover the cost of education. Repayment terms can vary from 10 to 25 years for federal loans and from 5 to 15 years for private loans. The loan amount can vary from tens to hundreds of thousands of dollars. Interest rates can also vary, from 3.75% to 6.30% for federal loans, and from 1% to 13.5% for private loans.
- Mortgage. This type of financing allows you to get money to buy a house. The loan amount can reach millions of dollars and the repayment period most often varies from 15 to 30 years, depending on the amount of the loan. The average mortgage interest rate is around 16%. Credit history will be one of the key factors influencing the approval of your application.
- Auto Loan. If you need money to buy a car, then Auto Loan is what you need. However, you must understand that this type of financing is most often secured and the car serves as collateral. So you could lose your vehicle if you can't make regular monthly payments. Repayment terms most often vary from 2 to 7 years. Interest rates will also differ depending on your loan and most often they range from 2.6% to 14.5%.
- Small Business Loan. If you are a small business owner and need money to expand an existing business or bring a new idea to life, then this type of financing may be a great option for you. The small business loan amount can vary from tens to hundreds of thousands of dollars and even reach a million. The repayment terms most often range from a few months to 25 years. Interest rates can range from 3.19% to 99%.
- Payday Loan. This loan is one of the most popular short-term types of financing. It has minimum eligibility criteria and is therefore available to borrowers with any credit. Lenders offer only small loans (Payday cash loan) ranging from $100 to $1,000 for short-term emergency needs. Even though this loan is easy to get, it is famous for its extremely high interest rates, which can reach up to 400%. Repayment terms are most often between 14 and 21 days, but now lenders also offer 3 Month Payday Loan.
- Pawnshop Loan. If you are in urgent need of money, then you can also consider such a financing option as Pawnshop Loan which also requires collateral. All you have to do is come to pawnshop and provide a valuable item as a deposit. Most often, repayment terms are 30 days, and the loan itself will depend on the value of your item. Interest rates can range from 12% to 240%. Read also - Pawnshop Loan Vs Instant Cash Advance
What Do I Need To Get A Loan?
In order to receive any type of financing, you will need to meet certain eligibility criteria for the selected lender. They may differ depending on the state you live in, but most often they remain the same:
You need to be at least 18 years old or older to be eligible to apply for financing
You need to have a stable monthly source of income for getting approval
You must be a US citizen or official resident
In order to be approved you need to provide government issued ID, passport or drivers license
Most lenders also ask for your active bank account
You’ll also need to provide your contact data such as phone number and email
What Are Other Type Of Loans I Can Pay Attention To?
- Medical Loan can help you manage any medical expenses that are not covered by insurance.
- Credit Builder Loan helps people with a bad or no credit history build good credit in order to qualify for better loan offers in the future.
- Home Improvement Loan helps borrowers cover all repair costs.
- Car Title Loan is a type of secured loan backed by your vehicle title as collateral. Auto title loans allow a borrower to get $10,000 on average even with bad credit.
- Wedding Loan is designed to enable borrowers to cover all wedding expenses from rings to honeymoons.
- Debt Consolidation Loan is a loan designed to enable the borrower to cope with existing debts.