5 common types of loans you need to know
Whether you’re looking for a home, a car, or debt financing for your business, chances are you’re sorting out your loan options. Before you grab the keys and travel your way to the bank, make sure you’ve decided on the best loan that fits your financial needs.
Photo by Filip Šablatura
With a handful of loans out there, it can be pretty difficult to choose which one is suited for you. Let us help you navigate the process. Check out these # common types of loans available:
Secured loans require collaterals, something borrowers take a huge risk in. This means in case a borrower default on their loan (i.e. title loan), the bank or lender can acquire the asset enlisted as a secondary source to cover for the defaulted loan. On the semi-bright side, the interest rate for secured loans are significantly less than unsecured loans.
Meanwhile, unsecured loans doesn’t require any collateral albeit a slightly higher interest rate. If a lender thinks you’re capable of paying for the loan on time, you may be granted with an unsecured loan.
In short, if the lender knows you pay on time; and your proposal or application sounds good, it’s more likely they’ll write you an unsecured loan—not one of your properties or assets on the line. This is because they consider you a low risk borrower. If your history is polished, applying for a unsecured loan should be a breeze.
This type of loan grows in popularity year after year. Short-term loans does not require monthly payments; and from the term itself, these are loans applied for for short-term needs (i.e. unexpected bills payment, car issues, accidents,build up inventory, for small projects, etc.).
This type of loan are offered by banks and credit unions; there are numerous online lending services you can even find on the web. Instead of monthly payments, short-term loans are paid for upon the agreed payment due, in full.
Home equity loans, personal loans, car loans, and the likes, fall under the category of conventional loans. Basically, conventional loans are the type that you pay for monthly, for years, or depending on your contract. For instance, $9,000 payable for 5 years, minimum (or more than) payments monthly, with 5- or 10% interest.
Small business loans
There are a handful of business loans (i.e. short-term loans, invoice financing, equipment financing, peer-to-peer lending, etc.). If you’re an entrepreneur or a business owner looking to expand your company, you can get approved for a small business loan application. You only have to the requirements—this includes a concrete business plan or proposal.
More often than not, business loans are approved with the borrower having to put up their asset(s) as collateral. You know how businesses work—either it fails or succeeds. Also, considering the loan amount (a couple of thousands up to a million dollars (or more)), makes the collateral comprehensible.
These are only a few of the many types of loans available you may apply for at desperate times of need. If you have anything to add, or any thought you can share, leave a comment below!
About Chie Suarez
When she’s not at home binge-watching shows, Chie Suarez writes for MarketLend, Peer-to-peer lending or marketplace online lending company that cuts out the middleman, cuts down on red tape and puts the investors and borrowers in direct relationship.