9 Different Types of Loans That Can Help You With Your Financial Woes
Although no one likes to think about it, running into a difficult financial situation happens to the best of us. Losing your job, having an accident with your vehicle, or running up a medical bill doesn’t take much forethought.
They can wreak havoc on your finances, though. So what can you do to avoid problems?
One way of getting the money you need involves taking out a loan. There are different types of loans on the market, so don’t assume you can’t benefit, even if you don’t have great credit.
It’s important to note that each loan has different requirements. Some you’ll qualify for and others you should view as a last resort.
Learn more about the 10 loan types on the market. Discover how this can help you find the right one for your situation.
1. Loans with a Co-Signer
Having a co-signer makes it easier for you to get approved for any type of loan. Essentially, your co-signer is someone who promises to pay the loan if you default on it.
There are a few things your co-signer should be aware of. It’s important that you choose a co-signer who is someone you know well, such as a relative.
If you simply need to borrow the money and don’t intend to skimp on payments, picking someone you have a close relationship with can help seal the deal. If you have a way to pay back your loan, working with a co-signer can be a useful way to get more money than you’d qualify for on your own.
If you have someone who’s willing, consider doing this type of loan.
2. A Secured Loan
A secured loan means it’s backed up by collateral you can use if you default on the loan. Many people put up their house or car when using collateral, in order to get the money they need at a lower rate.
It’s important to note that while you’re highly likely to get approved when using a secured loan, your chances of defaulting can be higher. When you have the goods to put up and don’t want to deal with a co-signer, this provides a useful option.
If you’re confident you can easily pay your loan, this offers a better-than-average chance of approval. Consider getting a secured loan the next time you need money and don’t want to jump through a lot of hoops.
3. An Unsecured Loan
Unsecured loans are the opposite of a secured loan. That is, they’re loans that aren’t backed by anything. You’ll notice the interest rate is higher – sometimes 5% or more.
That’s because lenders are taking a bigger risk and hoping you’ll pay everything back. These are sometimes referred to as installment loans, meaning you’ll pay an amount every month after you get the entire loan you were approved for.
You’ll need to show you have the income to repay the loan and fill out an application. Other documentation is normally required, making this a lengthy process.
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4. Loans with Variable Rates
Loans with variable rates sound a little puzzling at first. Essentially, you’ll get a loan, but the interest rate can change over time.
That means if interest rates on loans go up, yours will too, regardless of when you took it out. If rates start going down, the same applies to your loan’s rates.
If you plan on paying off your loan quickly, you won’t need to worry about the rate too much. But if you think you’ll have the loan over the course of several years, consider if this is the best type of loan for you.
Sometimes there is a cap on the rates and how much they can change for your loan. But this isn’t a guarantee, and situations vary depending on your lender.
5. Loans That Offer Fixed Rates
Unlike a loan with a variable rate, you’re locked in at a fixed-rate. This means regardless of what happens with rate changes, it won’t affect your loan.
One of the benefits of choosing a fixed-rate loan is you can budget it into your finances and not worry about anything changing or causing you to juggle your money.
However, just like an unsecured loan, the lender takes on more of a risk, in turn raising your interest rate and monthly payments. If this still sounds easier to deal with in exchange for peace of mind, find out if it’s possible to get a fixed-rate loan, and see how it can make a difference in your finances.
6. Pawn Shop Loans
Many people consider pawn shop loans a last resort–and with good reason. They’re often high in interest. If you default on the loan, you lose the item that you pawned.
Still, going to a pawnshop for a loan can offer fewer risks than other options. For one thing, it’s safer than some of the online loan options popping up on the internet these days.
If you default on your loan, your item simply gets sold in the shop instead of going back to you. If you have something you’re not concerned about losing and don’t know if you can get it back, this could be helpful.
Pawn shop loans are typically fast too, allowing you to get the money that same day rather than waiting to get approved. If you’re in a hurry and not too particular, this could provide you with a useful way of getting money.
7. Payday Loans
Payday loans can be predatory due to high-interest rates. It’s important to proceed with caution if you’re not sure about the best way to handle this situation.
Payday loans will normally use either your paycheck stubs or sometimes other collateral, such as your car, to decide if they’ll give you a loan and how much it’s for. If you plan to have a large lump sum in the near future and can pay them back quickly, this could be an option (although still not the best one).
Otherwise, it’s worth your time to explore other choices. If you qualify for something else, you’ll find it easier to manage and pay back than a payday loan.
8. Debt Consolidation Loans
Debt consolidation loans combine all your debts from other loans into one. While this might sound overwhelming at first, having everything combined into one loan makes it easier to pay down later on.
These loans feature a lower APR, and fixed monthly rates that can help you budget with ease. If you’re ready to put all your debt in one basket and manage payments to just one provider, this offers a helpful solution.
It’s helpful to talk about this option with a financial planner first, before jumping the gun. While a debt consolidation loan sounds easy, if you’re not financially prepared, it can make life a little more difficult to budget for with a higher payment amount every month.
9. Loans Operating on Cash Advances Through a Credit Card
Cash advances offer a way to get the money you need quickly off of a source you already have. If you have a credit card that already has money available, but you need the money in cash form (or something else, such as a cashier’s check), this is one option.
Most banks can do a cash advance, although don’t expect it to come free. There are fees associated with cash advances, including a higher interest rate, even if you are a customer of the institution.
Nonetheless, if you have a credit card with money available and don’t want to jump through paperwork, a cash advance loan can provide a useful solution.
Discover More About Different Types of Loans
There’s more than one way to get a loan if you’re in need. Many people think they don’t have good enough credit or otherwise wouldn’t qualify to get a loan from their bank.
However, there are options besides banks including payday loans and credit card cash advances. If you have someone willing to co-sign, this can provide a viable way of getting the money you need as long as someone else is willing to take a risk.
Obviously, there’s a lot to learn about when it comes to getting approved for different types of loans. Armed with the right knowledge, you’ll feel confident of what to expect, picking the best loan for your needs and lifestyle.
Are you interested in learning more about loans? Check out our blog post on how you can improve your chances of getting approved for a mortgage loan.