There are a lot of mistakes people make when taking out quick loans. These mistakes can include not having a budget, not being able to afford loan payments and more. However, one of the worst mistakes they can make is simply not knowing which type of loan is right for their situation.
See, all loans aren’t created equally, and each come with their own intricacies and nuances. One loan might be awesome for a friend, but wouldn’t make any sense at all for you to use. In an effort to help you understand more about them, this article is going to take a closer look at the different types of loans available for you to get.
A secured loan is one that requires the borrower to put up some sort of an asset as collateral for the loan. If you default on the loan, the lender will take possession of the asset and likely sell it to recoup the money the loaned you. While this type of loan will likely come with a lower interest rate, it is a huge risk to put up a car, your home or your savings account up as collateral like that.
Unlike a secured loan, an unsecured loan doesn’t require any sort of collateral at all. As a result, these loans are often more difficult to get as they are more risky for lenders. In addition to that, they will have higher interest rates. Because of no collateral, these loans will depend on your credit score and credit history to determine how much you can borrow and what your rate will be.
Short Term Loans
Most loans, especially car loans and mortgages, have term lengths that can extend for years and years. However, there are also short term loans available for you, too. These short term loans are usually for smaller amounts (a few hundred up to around $2000), and have shorter payback periods, often around a few months up to two years. They will also have higher interest rates because of the short repayment period. Short term loans are perfect for those who only need a small loan and don’t want to be locked into a huge loan for many years.
An open-ended loan is one that you are able to borrow from over and over again. A line of credit or a credit card are common and popular options of open-ended loans. These types of loans have a maximum credit limit that you can use, and you can use as little or as much of your available credit as you like. Once your available credit gets low (or a credit statement is released) you can make a payment, which will free up more available credit to be used.
A closed-end loan is one in which cannot be borrowed again, and are generally a one-time loan. As you make payments on these loans, the balance you owe will go down. This type of loan is what most people think of when they imagine a loan. This type of loan includes mortgages, student loans, car loans and others. If you require more credit, you will have to apply for a whole new loan, which can be a little bit annoying.
In conclusion, hopefully this article has helped you to understand and learn a bit more about the different loan options you have at your disposal. While these are not the only types of loans you have available, they are among the most common that people will utilize when they need a little bit of extra money.