There are quite a few types of loans available these days and they can be quite confusing and hard to understand. The good news is that they’re easy to learn about and you shouldn’t have many problems once you understand them. Keep in mind, there are many different types of loans and they all have different situations where they work the best. Keep reading to see the different types of loans and when it’s a good idea to get each one.
Unsecured Loans
The first type of loan available is an unsecured loans. These types of loans are ones that you get without putting up any kind of collateral. Since this is the case, they often have higher interest rates. Different places will offer different amounts, but some places will only offer low amounts, like $300, while others will offer larger ones, like $10,000. You’ll have to contact the specific institution and see what is offered to you.
The types of situations that really benefit from these kinds of loans are ones where the person needs money fast but doesn’t have any type of collateral to put up, or would rather pay a little extra to avoid the risk. There are a few types of unsecured loans, including a one-time loan and an installment loan. The one-time loan will only give 1 payment before you have to start paying it back, while an installment loan usually gives you a lump sum at the beginning, then a certain amount every month.
The good thing about these loans is that the payments are predictable. If you got approved for one that is just a one time payment, you’ll know the exact date when it comes and the exact date you’ll have to pay it back. On the other hand, if you get an installment loan, you’ll know the exact date your payment is sent to you and you won’t have to sit around waiting.
The biggest negative of these types of loans is that people with lower credit will have a really hard time getting approved, if at all. If they do happen to be approved, they’ll probably get a lower amount and possibly a higher interest rate.
Secured Loans
There are also secured loans. In order to get one of these loans, you have to have some kind of collateral to put up. It can’t be just anything and has to have some value to it, such as a mortgage or a vehicle. Some banks will offer these types of loans if you have an account with them. The account you have will be put up as collateral. While you won’t have to pay the fees associated with an unsecured loan or actually sell the asset, you’ll have to pay a monthly interest or fee to the company that gave you the loan.
The situations that benefit the most from these types of loans are the ones where someone needs money quickly and actually has something with a lot of value to put up as collateral. In order to make sure you don’t lose the collateral you put up, you want to make sure you make the payments on time and try not to miss any of them.
The biggest advantage of these types of loans is that they usually have lower rates and it’s not as dependent on your credit score. The collateral you put up can really cut down on the hoops you’ll need to jump through.
The biggest disadvantage is that you can easily lose your collateral if you miss a payment. Since this is the last thing you want to happen, you need to make sure you’ll be able to make every payment on time and in full.
Fixed-Rate Loans
Another option would be a fixed rate loan. These loans are the most common ones that people end up getting. Different places will have different requirements, so you want to make sure you figure out what these requirements are before agreeing to the loan. Some places might have higher interest rates, while other places might be able to offer a higher loan amount.
The situations that benefit the most from these types of loans are the ones where someone needs money pretty quickly, has a decent credit score and will be able to make the payment in full every month. Even though you won’t lose any kind of collateral, not paying on time or in full can give your credit score a substantial hit. This is something you want to avoid because it can hurt your chances of getting different types of credit in the future.
The biggest advantage of these types of loans is that they have a fixed rate. This means that your payment and interest rate will stay the same over time. This is great for those who are trying to budget because they don’t have to worry about not knowing exactly what their monthly payment will be, or dramatic changes in interest rates.
As far as disadvantages, the biggest is that the rates might end up being higher. The reason is because the company lending the money is taking a higher risk and they need to make sure their bases are covered.
Debt Consolidation Loans
Next is debt consolidation loans. Make sure you go with a reputable company, like Roseland Associates, for these needs. These are loans that make it possible to combine most of your debts into one loan that only requires you to pay one payment instead of many. Different places will only let you combine certain types of debt, while others will let you combine any and all types.
These loans are perfect for those that have multiple different kinds of debt, such as credit cards, payday loans and medical loans. Instead of having to budget for multiple different payments every month, they can budget for just the one payment. Many times, these loans will actually help you get a lower monthly payment than you would if you paid every debt separately.
The biggest advantage of debt consolidation loans is that they’re very easy to qualify for. The requirements are usually more relaxed than other types of loans. Keep in mind, you’ll want to make sure you read all the requirements and conditions for each company you consider.
The bad thing about these loans is that they almost make loans too easy. Many times, borrowers will free up assets through consolidation only to go on to spend those assets and go further into debt. Even with that being the case, your monthly payment will usually be lower than it would if you paid each debt company separately.
Variable-Interest Loans
You could also try and get a variable-interest loan. These loans are ones where the interest rate might change over time. This means you might end up paying more or less than you did when you first got the loan. Keep in mind, not all lenders will offer these types of loans, so you want to make sure you check out different companies if this is the type you want.
The best situation for these types of loans are ones where people can afford to pay a payment that might not be the same every time. If you are on a strict budget, you should stay away. Keep in mind, there’s a chance that the loan amount won’t change, but you need to be prepared if it does.
The biggest advantage is that you can borrow exactly what you need. This helps ensure you won’t get in more debt than you need to. You won’t have to borrow hundreds or thousands over the actual needed amount. When you make your monthly payments, you’ll only have to pay interest on the amount you actually borrowed.
The biggest disadvantage is in the name. Since the rate is variable, there’s a chance that the rates could fluctuate. This means you probably won’t know the exact payment you’ll have every month and it can be a bad situation for those on budgets.
Secured/Unsecured Lines of Credit
The final types of loans available are secured and unsecured lines of credit. These are usually offered by banks to people who meet very specific requirements. The biggest requirement they have is that you have to actually have an account at the bank, so it might be a little hard to get approved if you don’t have a certain amount in your account.
They are great for those that have an account with the bank with a certain amount in it. If you’re over a certain amount, you should be able to get approved pretty quickly and easily.
The biggest advantages are that the interest rates are usually lower, and the interest paid can sometimes be tax-deductible. This is great news when it comes to tax time.
The biggest disadvantage is that they usually have closing costs. These will need to be factored into the payment and there’s a chance that the amount can be pretty hefty.
Regardless of which type of loan you decide, you want to make sure you go with someone who is an industry expert and reputable, such as Roseland Associates. The best thing to do is shop around and make sure you’re getting the deal you want and need before jumping at the first offer.
