Which Type of Loans Are Right for You?

If you’re looking to obtain a loan for whatever reason, you’re going to need to know which types of loans to apply for. Not all loans are created equal, which is why you should take the time to research your available options and go after those that are most suitable for your situation. If you need help with determining the type of loan you should get, you can consult with a financial advisor or loan officer. You can even go to your bank to talk with them about loan options that are available.

Today, you will find that obtaining a loan is a lot more difficult, thanks to the economic slowdown. Before, people were handed loans left and right, sometimes to individuals who weren’t even able to afford it. If you play your cards right, you could end up snagging a loan to purchase a house, car or pay off personal debts.

Secured Loans

One type of loan that’s available is known as secured loans. With this option, you’re obtaining a loan that uses an asset as collateral, such as your vehicle, house or business. Consumers are commonly attracted to this type of loan because they offer low monthly payments that are spread over a long period of time. Of course, things always seem better than what they actually are. You should be careful when applying for a secured loan because if you end up defaulting on it, you could end up losing the asset you used as collateral. So if you end up coming across a financial hardship, you’ll need to make sure that your secured loan is always paid for – it’s a priority.

People who get secured loans are those who need to make a large purchase, such as for renovating a home or making improvements to a property. Others use it as a way to pay off or lower unsecured debts.

Unsecured Loans

There are a variety of different unsecured loan products that you can find. They come with different term lengths and interest rates. The good thing about this loan is that you don’t have to use an asset as collateral to obtain it. Although, if you default on the loan, the lender will be able to take certain measures to regain what they’ve lost, such as foreclosing or repossessing a house or car. It’s important that you use this type of loan for shortcomings in your income because you could end up in a debt spiral that requires you to take out more loans to cover other credit commitments.

Some people use an unsecured loan for a one-time large payment, such as for furniture or a wedding. The interest rates for these are lower than credit cards, which makes them a good option for consolidating credit card debt.

Payday Loans

When you want an instant short-term loan that is small, you can use a payday loan. In order to get a payday loan, you will need to be working at a place that is verifiable and you have to show proof of your identity and income. You are able to receive a loan up to the amount of your average pay check. You will have to repay the loan within 2-4 weeks, depending on the frequency of your pay check. This is known as a pay day loan because it is used as a way to get an early pay check, but must be repaid in cash or with a post-dated check that you give to the lender at the time you obtain the loan. These loans are commonly used by individuals who need fast cash for an emergency or personal expenditure. The interest rates are usually high, which is why these should be used for an emergency. You should also only borrow what you can afford to repay, so that you don’t end up relying on payday loans to cover bills.

Auto Title Loans

If you don’t want to use your bank account as collateral, like with a payday loan, you can obtain an auto title loan, which is a loan taken out against your vehicle’s title. You are given a year to pay back the loan and the interest rate is very, very high. If you default on the loan, the company can take your car and sell it to regain what it has lost. Whatever money they were unable to obtain will have to be paid by you. This too should only be used for emergencies and only at an amount that you’re able to pay back in full.