With the unexpected changes of economic times due to Covid-19, it’s an excellent idea to know the kinds of loans you can get today. At some point, you may get yourself in a challenging situation whereby you may need emergency funding.
I care for you, and that’s why I don’t want you to get a loan without understanding it fully. So, today I’ll show you the different types of loans and how you can choose the best for your needs.
Now, let’s get right into the details.
Types of loans
The main classification of loans is secured and unsecured loans. For secured loans, the lenders need you to provide your asset as collateral against the loan.
The case for unsecured loans is different because the lenders do not depend on your asset to give you a loan. Instead, they rely on your affordability and sometimes your credit score.
So, for each type of loan I mention, I’ll tell you whether it’s a secured or unsecured loan.
1. Personal loans
These are loans that you take to do personal needs. The lenders of personal loans do not restrict you on how you should spend the money you get.
Personal loans can be secured or unsecured loans. In most instances, secured personal loans occur when the borrower has a bad credit score but needs considerable money.
But if you take an unsecured personal loan, it means you have a good credit score and can comfortably afford o repay the loan.
2. Payday loans for Unemployed
A payday loan is a loan that you get from a payday lender and repay during your next payday. These loans are entirely unsecured. The biggest drawback of loans for unemployed is that they have very high-interest rates compared to other loans. The APRs of payday loans start from 390%, and they can go beyond 700%.
In addition, the loans amounts are small, so you cannot do a significant project with the money. Furthermore, you only make one lump sum repayment of the total loan amount plus the interest.
But once you have a terrible credit history and need an emergency loan, you can get a payday loan. First, however, you must have steady employment in the last three months.
3. Business loans
These are loans that you take specifically for business purposes only. For example, you may add more products and services, expand your land or buildings, or hire professional workers.
You cannot do anything else like buying a personal car or a personal house with a business loan. Therefore, whatever you do with the loan should be 100% business expenses.
However, ts advisable to be careful when taking a business loan because you will largely depend on the profits to pay off the loan. So, do not take a huge business loan amount that will start sabotaging your business.
4. Auto loans
Auto loans are loans that you take to buy a vehicle. Apart from purchasing a car, you cannot use the money on something else.
In addition, the vehicle you buy becomes the collateral. So, if you quit repaying the loan, the lender will repossess the car to recover their money.
Therefore, if you need to take an auto loan, you better ensure your repayment—lest you lose the vehicle plus your money.
5. Mortgages
A mortgage is a loan that you take to buy a home. Once you get the loan, the lender uses it as collateral. So in cases of default, the lender repossesses the house to regain their money.
The loans are of massive amounts, and the interest rates are fair. Therefore, before you can settle for a specific mortgage lender, ensure that you shop around.
How to choose the right lender
- Compare interest rates from multiple lenders
- Get the one with the best repayment terms—that you are comfortable with
- Learn about any extra fees
- Take the loan that suits your need
Bottom line
It’s good to know the loan you want and its terms before you start applying for one.