If you’re looking to get a loan, it helps to know what you plan on using it for. There are several types of loans available in the country, ranging from something that simply adds to your current funding based off of your salary, or something that requires a lot more thinking like a business loan.
It’s important to understand your options and the risks involved when borrowing money. Most loans fall under two distinct categories: Unsecured and Secured.
Secured loans require collateral, which will be used to pay back the amount borrowed should you default on the loan, while Unsecured loans require no collateral but have a higher interest rate in order to ensure prompt payment.
5 Types of Loans You Should Know About
Personal loans are also called multi-purpose loans, meaning these can be used for just about any purpose you decide. Lenders can choose whether or not their variation of a personal loan is secured or unsecured.
It’s important to note that personal loans may require that the purpose for borrowing be stated on your application, and unsecured personal loans will have high interest rates for those who miss payments.
Salary loans or payday loans are quick loans that are meant to be paid off by the next salary cut-off. It functions primarily as short-term credit that you can acquire in case of emergencies and your current cash flow cannot cover everything.
The amount may be automatically deducted from your bank account on the following payday. Interest rates on this type of loan are typically higher owing to the shorter duration in which it must be paid off.
Business loans can also be considered a multi-purpose loan, if only that it restricts all purposes to the establishment, expansion, and further development of a business. In this case, lenders will check the profitability of the business in question, or require a business presentation prior to any approval of a loan application.
The amounts offered on a business loan will also differ depending on the institution, as will the interest rates and repayment durations.
Car loans, or auto loans, are specifically for buying a car. The car itself is mortgaged to the lender until the loan is paid off completely, meaning that should the borrower be unable to pay the loan in full, the car will be repossessed.
Many lenders also take into consideration that some may want to purchase a second-hand vehicle instead of a brand-new vehicle. This variation on a car loan is also specified when you’re comparing available loan packages. Still some other lenders bundle car insurance with their loan packages, easing the financial burden on potential borrowers.
Like business loans, home loans are specifically for the purchase of pre-built homes, condominium units, or residential lots. A home loan may also be used to make renovations on existing property, depending on the conditions set by the lending institution.
Like car loans, should you default on your loan, the property purchased may be repossessed as payment of the amount borrowed plus interest. Some lenders also provide home insurance or lower interest rates if the loan made is towards a partner property seller.
These are the loan types that are readily available in the country. If you’re looking to take out a loan, it’s to your advantage to visit a website that provides personal loan comparison so that you can get a rough idea of the total cost of the loan you wish to apply for, as well as benefits and other additional value services.