In today’s world loans can be utilized for various things and there is a wide variety of options available in the loan market, but it is important to research what type of debt obligation will work for you. This quick handy guide will give you all the ins and outs of choosing the right loan for yourself.
There are primarily two different types of loans: Secured loans and Unsecured loans:
A secured loan is a loan which is protected by an asset. With such loans, the lender can take possession of the collateral if you do not repay the loans as you have agreed for. A house mortgage and car loan are the common types of secured loan.
An unsecured loan is the reverse of secured loans. It is not protected by any collateral. In any case, if you default on the loan, the lender cannot automatically take your property. A student loan, personal loan and credit cards are the common types of unsecured loans.
Further loans can be classified as:
Different Types of Loans
Personal loans are provided to meet the personal needs of the borrower by offering an instant flush of liquidity. Personal loans are the most versatile loan type which can be used for any personal expenses and don’t have a designated purpose. A personal loan is one of the popular types of unsecured loans since it is an unsecured mode of finance, the interest rates are high compared to secured loans. A good credit score along with stable and high income ensure you can easily avail this loan at a competitive rate on interest
Credit Card Loan
It has become a popular loan type as it is one of the most convenient ways to pay for the things you buy. Your credit card may offer a cash advance, which is basically a short-term loan that you borrow against your card’s available balance. If the full balance is paid by you immediately then no interest will be charged. If some debt remains unpaid by you then interest will be charged every month until it is paid off.
It is a type of secured loan where your home is used as collateral to borrow a lump sum of money. The amount you can borrow is based on the equity which you have in your home or the difference between your home’s current market value and how much you owe on your home. Typically, you can’t borrow more than 85% of the equity you have in the home. Home equity loans are suitable to consolidate your credit card debt, house repair & renovation, pay off a student loan and several other worthwhile projects.
Small Business Loan
This loan is granted to aspiring entrepreneurs to help them start a new business and expand established ones. Such loans are provided only after the business owner has submitted a formal business plan for review. Traditional banks would like to see that borrowers have minimum credit scores of 680 or higher. The term of the small business loan usually includes a personal guarantee, meaning that a business owner’s personal assets serve as collateral against default on repayment.
Whenever you decide to take any type of personal loan or other loans make sure you understand the agreement fully. Apart from this, familiarize yourself with the repayment terms. If any part of the agreement is unclear to you, don’t hesitate to ask for clarifications and adjustments.