When you are thinking about getting a loan or applying for credit, it is important that you know the different types of loans and credit that are available to you.
With the majority of lenders, when it comes to applying for large sums of money, they will want to know what you want to use the money for. This may not stop you from obtaining the money, but each business will have its own guidelines when it comes to lending out funds.
The Basics on Loans
Before you even think of going for a loan, it is very important that you go through your finances so that you know what you can afford to repay each month. Most types of loans have monthly repayments. Some have interest that is calculated by each month, so the sooner you pay off the loan, the less interest you pay the lender.
However, there can be lenders that could work out how much the interest should be over the whole of the lending term, calculate the interest, and add it to the repayment fees. In this case, you are going to be paying the same amount of interest on your loan regardless of how fast you pay it off or whether you stick to the agreed time frame.
That said, managing multiple high-interest debts at the same time can be stressful. This is when it could be good idea to look at debt consolidation loans, which might make your finances a lot more manageable to keep track of.Debt consolidation may lower your interest rate or monthly payment but be sure to consider origination fees and the length of repayment–which can offset the savings or even increase the total you pay over the life of the loan.
Regardless of how the interest is calculated on your loan, it is vitally important that you continue to make your payments, and if for any reason there becomes a problem with you doing this, you should contact your lender straight away to let them know. In most cases, they should help you work out another payment method or change the terms of your loan either temporarily or permanently so that they can recoup their money and you can keep paying them.
A secured loan is generally for much larger sums of money such as home loans, car loans, etc., and this is where the loan is secured on your property, so for example, if you default on your car loan, the lender can take your car from you.
An unsecured loan is generally for a smaller amount, although not always, and just as the title states, it’s unsecured. These are loans such as credit cards, cash loans, and student loans, which generallymeans that if you default on your payments, you still owe the money, but your possessions or purchases cannot be taken away from you.
You’re likely to find that unsecured loans tend to have higher interest rates and shorter repayment times as they are seen as a higher risk to the lender, whereas secured loans are lower risk to the lender as they might have the loan secured on an item of property that has the money value to cover the loan itself.