Types of Loans – How to Choose the Right One for You

Nowadays, banks and non-bank financial institutions offer excellent loan products. They give you the chance to get the things you need immediately, such as a car, a house, etc., or help you pay household bills and old debts.

But regardless of your reason for taking this step, you should get familiar with the different types of loans and terms that may be available to you first. This will get you a clear idea of what exactly you need and what institution to turn to. Whether you will choose the well-known personal loan or any other type, depends on your needs and preferences. Let’s see what options you have:

Personal Loan

A personal loan is an amount of money that you can borrow and use for different purposes like bills, trips, home renovations, bigger purchases, etc. The money must be paid back over a certain period of time with interest. An exception is the interest-free personal loans which are given only to new customers. You can receive a personal loan from banks, non-bank financial institutions, credit unions, online lenders.

When it comes to their amounts, repayment terms, interest, and fees personal loans can vary greatly. They can be unsecured and secured. The unsecured loan does not require any kind of collateral in order to borrow money. On the other hand, collateral is a mandatory condition of borrowing a secured loan.

Car Loan

A car loan is a sum that a borrower takes to buy a new car. You may also see this type of credit under the name automobile loan. It could be lent to an individual person, a company, or another entity. When borrowers agree to take the car loan, they must repay the full amount of money plus the specified interest. The interest rate is usually a percentage of the loan amount which is calculated on an annual basis. As with personal loans, the borrowers of car loans must pay back on monthly payments by a certain date. Keep in mind, a car loan is different from car leasing. In this case, the borrower agrees to buy the car and owns it when the whole loan is repaid.

Mortgage

Mortgage loans can be used in two cases – when you want to buy a new home and need financing and when you need to borrow money and agree to stake your own property. Basically, this is an agreement that gives the lender the right to take the customer’s property if they fail to repay the loan. There are many things to consider if you intend to take a mortgage loan like the size, the interest rate, the closing costs and fees, the annual percentage rate, the term, and so on.

The interest rate can be fixed or adjustable and you have to decide which would be more suitable for your situation. With mortgage loans, it is very important to take into account whether they have any risky features such as hidden clauses, pre-payment penalties, negative amortization, or others. Unlike consumer loans, they require a lot more documents. You cannot take out such a loan if you don’t provide proof of income and other documents related to the property. If with fast online loans there is a chance of approval even with a bad credit history, there is none here.

Payday Loan

Perhaps, many of you have heard of the popular payday loan. It is preferred nowadays because it offers an easy and quick solution to unexpected expenses. This is a relatively small amount that the borrower takes and agrees to pay back when they receive their next wage. However, it usually has a serious drawback – high interest rate. So, as convenient as the payday loan seems, you should be careful what terms you agree to.

Credit Card

A credit card is a plastic that is issued by a bank or another financial service. It allows cardholders to borrow different amounts of money to pay for services or goods. Users must pay back the borrowed money plus the applicable interest and any additional fees if necessary. Credit card often has a higher interest rate so it is also considered not very advantageous. On the other hand, you have the funds at your fingertips and don’t have to wait for approval as with other loans.

Loans should be chosen according to preferences and financial situation. When used wisely, they can help people improve their standard of living. And vice versa – used indiscriminately, they can lead to unpleasant problems and big financial losses, including the loss of property.