Before choosing a loan, it is essential to familiarize yourself with the different types of loans out there so you don’t make a mistake. More importantly, you need to decide what you need the money for and then compare interest rates and terms to make the best choice that fits your circumstance. That said, we have outlined the most common types of loans below for your consideration :
- Secured Personal Loans
As the name suggests, personal loans are used to fund personal expenses such as weddings or to purchase expensive items like home furniture. Personal loans can either be secured or unsecured. Secured personal loans require collateral like a house, car, or certificate of deposit to back up the loan. They generally offer lower interest rates than unsecured loans as they are considered less risky than the latter. You should consider a secured personal loan if you can pledge collateral and guarantee to pay back the loan. However, you should remember that you could lose your asset if you don’t pay back the loan when due.
- Unsecured Personal Loans
Unsecured personal loans are the direct opposites of secured personal loans, in the sense that you don’t obtain the loan at the expense of collateral. But because you don’t pledge an asset to “secure” your loan, the lender might have to use your credit rating to gauge your eligibility for the loan. In most cases, people with a higher credit score rating are given priority over those with lower scores. Also, the interest rate tends to be higher than secured personal loans, so expect to spend more money on interest.
- Payday Loans
Payday loans are short-term loans that are characteristically due to be paid by your next payday. Payday lenders usually work with various state regulations, so your principal, interest rates, and terms may vary per location. Payday loans come in handy when you are stuck in a financial rut and need a quick fix to handle your day-to-day expenses. However, most payday loans come at a high cost that translates to annual percentage rates of around 400%. Do not take a payday loan if you are not confident of meeting the deadline or offsetting the loan when due.
- Cash Advance
A cash advance is a short-term loan offered by your credit card. This means you can borrow money in advance against your credit card balance for a short period. Cash advances are best for situations where you don’t need cash to make payments. Otherwise, you might want to reconsider this option as not all businesses accept credit card payments. Keep in mind that you might have to deal with higher credit card interest rates than usual. You may also need to pay a processing fee.
- Cash Loans
In simple terms, a cash loan is a loan handed to the borrower in cash for a fixed period or on a short-term basis. Cash loans can either be a personal loan or a business loan. It is best used to cover unforeseen emergencies or when you are strapped for cash and need money for your daily needs. Depending on the set schedule, you can pay back a cash loan in increments or as a lump sump.
Which is the Best Type of Loan?
The best type of loan is one that suits your needs and financial capacity. No matter what you need a loan for, it is crucial to understand the stakes attached to the loan. Is the interest rate favorable? Can you meet up with the stipulated term? Do you need the money in cash? Do you have an emergency to settle? The answers to these questions will determine the best loan suited to your unique circumstance.
In other news, you can get started with a credible and technology-savvy, short-term, money-lending platform like CashnGo. You are sure to get the best loan that meets your satisfaction without hassle.