6 Types of Loan You Need to Understand
Loans can be great safety nets when you’re in trouble. Or they can allow you to do things that you wouldn’t otherwise have been able to do. But there are so many different types of loan out there, and it can be hard to know what each one is for and what the pros and cons of them are. Below you’ll find that information for 6 of the types of loan you need to understand.
Personal loans are one of the most common forms of loan that people tend to opt for. These loans are usually offered by big banks and other mainstream lenders. They are also known as unsecured loans because they don’t require you to borrow against the value of your property, such as your home.
Instead, personal loans provide you with money that’s borrowed against your own personal credit rating. This can be a problem for people who have a poor credit rating, so it’s important to stay on top of your credit rating and make sure it’s in good shape. If it’s not, you might find it hard to borrow money in the future.
Small Business Loan
Loans for small businesses often help entrepreneurs start up their business or develop it further. Businesses can’t grow unless they have the cash invested in them to help them do so. So, this is why many banks offer loans to entrepreneurs. It can often be hard to get these loans because banks are cautious.
To make sure that your small business loan application is successful, you need to lay out a clear vision of the what they money will do. But it’s not enough to simply tell the bank what you plan to spend the money on. You also have to discuss what that investment will mean for the long-term future and growth of the business.
Home loans, also known as mortgages, are pretty self-explanatory. When you buy a home, most people don’t have enough money to buy the home outright because they’re too expensive. So, the bank can offer you a home loan to allow you to buy the property without having to save up a huge sum of cash.
Of course, you’ll still be required to pay a deposit. The size of the deposit changes depending on the mortgage agreement, but most of them are between 5% and 20% of the overall value of the property. Then you’ll need to make sure that your income provides you with enough money to make the monthly repayments.
When you take out a secured loan, you have to use your property as security against the loan rather than your credit rating. This can be good for people who have plenty of solid assets but a not so good credit rating. But whenever you use your property, especially if it’s your family home, as security, you’re taking a risk.
When you do this, it means that if you fail to make the repayments on the loan, and you default, they could take the home. They would then take possession of it, kick you and your family out of it and sell it on the market to make back the money that you failed to repay. So, this is something that you should think very carefully about.
Short-term loans tend to get a pretty bad reputation. They’re also known as payday loans, and they offer cash loans to people who need money quickly. The problem with them is that they have incredibly high interest rates. This means that if someone fails to pay back the loan quickly, the interest can mount up very rapidly.
That doesn’t mean that there are no benefits to short-term loans though. For people who have short-term cash flow issues, these can be the perfect solution. As long as you’re sure that you’ll be able to pay the money back quickly, there shouldn’t be any problems.
Debt Consolidation Loans
When you have lots of different loans, and you owe money to lots of different lenders, a debt consolidation loan can help a lot. These types of loan pay off all your existing debts and turn what you owe into one single debt, rather than lots of smaller ones. The main benefit of this is it makes them easier to manage.
When you only have one debt to pay, it’s easier to keep up with the repayments. Whereas, if you have lots, it’s easy to make mistakes and miss one of your deadlines. And that could lead to even more problems. Follow the link to have debt consolidation loans explained in more detail.
Now that you’ve read about the 6 most important types of loan, you will feel more comfortable next time you need to borrow cash.