What Loans Make Financial Sense
There are many reasons why you may want to obtain a loan, as loan proceeds can be used for a large variety of purposes. Whether you are looking to fund a new business or buy your fiancée a ring, there is a loan that you can use to fund it. However, it can be tricky knowing what type of loan works best for your particular situation. By knowing what loans are out there, and being informed on what the best one is for you, you can ensure that you make the best decision for your finances.
This type of loan is typically offered by banks, and can be used for almost any expense from paying off a bill to buying new furniture. In most cases personal loans are unsecured, and can be as large as thousands of dollars or as small as a few hundred. Lenders typically ask for some sort of income verification and in some cases proof that you have other assets that are worth as much as the amount you are buying. The negative of these loans is that there interest rate can be high, as they typically range from 10 to 12%. If you are an individual who is wanting to borrow a fairly small amount of money and who will be able to repay a loan within a few years then this may be your best option.
When you use a credit card you are essentially getting a loan with the understanding that you will repay it at a later date. When it comes to using them, credit cards are very flexible. You can use the money for almost anything from buying a drink to paying for your college tuition. However, there are some downfalls to this type of loan. For one, the interest rates are extremely high, and so consumers risk going into debt by using a credit card.
If you are a homeowner then you can borrow money against the equity that you’ve built up in your home by taking out a home-equity loan. The loan taken out against a house can be used for many things, but are often used in order to build house additions or to remodel. Home-equity loans are also often used for debt consolidation. Interest rates on these types of loans are often quite reasonable, and the terms typically range between 10 to 20 years. This makes them attractive to people who want to borrow a large amount of money.
Home-Equity Line of Credit
This line of credit functions as a loan, and is quite similar to home-equity loans in the way that you borrow against your home’s equity. The difference however, is that this is a revolving line of credit, which means that you can borrow a lump sum, and then repay a portion of the loan in order to borrow more again. This is sort of like a credit card that is limited based on your house’s equity. This type of loan is usually repaid over a period of 10 to 20 years and so they are more attractive for when you need money for a large project. It is important to be careful with this option as you can borrow a large sum of money, and so it is easy to get in over your head.
Cash advances are quite easy to obtain, and are often offered by credit card companies as a type of short-term loan. This type of loan is a good option if you need a fast alternative in order to get your hands on money, as you will be able to get funds on the spot. However, there are many downsides to this type of loan and so you need proceed with caution. For instance, the fees and interest rate for this type of loan can be extremely high. Additionally, you can only usually take out hundreds of dollars using this type of loan so they are often impractical for larger purchases.
Small Business Loan
You can get this type of loan from your local bank or Small Business Administration. This is an ideal loan if you are an entrepreneur who has a formal business loan that has been approved. It is usually required that you guarantee the loan. This means that you will put up an asset as collateral in the case that your business fails. The amount of the loan can range from a couple of thousands to millions depending on your venture. Taking out a small business loan is typically your best option if you want to fund an existing or new business. However, be aware that getting your loan approved by a lender is quite difficult.
A secured loan is a type of loan in which you must pledge some type of asset as collateral; this is typically your car or other property. This allows you to obtain a loan with a smaller interest rate, however be cautious, as you will risk losing your property if you are unable to repay your loan. This type of loan is best for those whose credit history is not stellar and who is confident that they will be able to repay their loan on time.