Choosing the right kind of loan for you will allow you to get a good deal with the lending company.
Whenever we are talking about our personal finances, it is better to think in advance about every step that we are about to take.
As you know, here at Oxford Funding, we specialize in installment loans.
Nonetheless, there are different types of loans that you should also consider before making a final decision.
Some of the choices are kind of obvious, some are not. All loans are different between them, so it is fundamental for us to understand these differences in order to take care of our finances.
Therefore, we need to take a deep look at our situation before borrowing money. Remember that all the money you borrow needs to be repaid with interest, so it’s better to get started by comparing different types of loans before proceeding.
After reading this blog post, you will now know:
- How loans work.
- Different types of loans.
- How to make a final decision when it comes to selecting just one type of loan.
Most of the types of loans you know are installment loans.
But, what does this concept mean? Installment loans are close-ended credit accounts that need to be paid overtime.
Usually, they include interest, but the rates vary according to the lender, type of loan, and other things related to the borrower.
They are called installment loans because the monthly payments are also known as installments.
An installment debt is considered as one of the best alternatives for making a purchase or covering an expense that we can’t cover at the moment.
The procedure is straightforward.
As you might know, first, you need to apply for a loan and fulfill certain requirements before getting finally approved.
After the individual gets the approval, the money will be immediately received. That money needs to be paid in regularly scheduled payments.
Normally, all monthly payments owe the same amount of money. Thus, the lender will provide a lump sum of money, and the borrower needs to bring the final balance to zero over the loan term.
Borrowing fees can be high, but this depends on many factors, such as the term of the loan.
At this point, it is obvious that all loans are not created equal. Hence, it’s our responsibility to understand the main difference between all the types of loans.
This knowledge will give us the tools to comprehend which loan fits better for our individual scenario.
There are more types of loans than just these five we are about to mention, but these are the most common of them all.
Let’s get into it.
Secured personal loans
First of all, let’s start with personal loans. Personal loans divide into two types: secured and unsecured.
What can you use personal loans for?
Pretty much for whatever you want. You can pay for your wedding, finance that new kitchen you want, or even consolidate debt if you must.
In the case of secured personal loans, it is necessary to offer up collateral, like, for instance, your car or a certificate of deposit.
Of course, if you end up not paying back on time, you run the risk of losing the collateral.
Nonetheless, secured personal loans offer amazingly low-interest rates compared to other loans because they are less risky for the lender.
Unsecured personal loans
Unsecured personal loans are just like the one we mentioned before, but, this time, you don’t have to offer a type of collateral.
Then again, you can use this loan for whatever you want. It is a good choice when making a significant purchase.
There’s no risk of losing your collateral, but as you might guess, interest rates tend to be high.
Mortgages are used to finance home purchases.
If you want to buy a new property to live in, then a mortgage is your best choice.
Unlike personal loans, mortgages involve a greater amount of money and term lengths of 15 to 30 years.
Therefore, the loan is repaid usually in fixed monthly installments over the course of the years.
Do you want to get a new or a used vehicle? Auto loans are for you.
Typically, auto loans have a term from 24 months to 72 months. Sometimes, the car being financed is also used as collateral for the lender to reduce the risk of the operation.
Keep in mind that car value generally declines over time, so be sure to consider this before getting an auto loan.
If you are looking for a short-term loan, then payday loans are your choice.
These loans usually are due by your next payday, and it’s traditionally used to cover emergencies or not-so-big expenses.
Payday loans are usually just 500 USD or even less.
Nonetheless, keep in mind that payday loans have insanely high fees (they can go up to 400%).
Needles to say, it is up to you to decide which type of loan better suits your needs.
Are you going to buy a new home to live in with your family? Go for a mortgage.
Do you need to cover an unexpected emergency? Payday loans are the way to go.
Is your daughter about to get married and you want to finance her wedding? Choose a personal loan.
Keep in mind to always check the details of your agreement. Do your own research, sort all the alternatives you can and make a final decision once you know which one is the perfect lender for you.
At the end of the day, remember that loans are just a tool to help us improve our financial status.
Think beyond the monthly payment and consider all the possible scenarios that can happen in your life. Remember that you don’t want to mess up your credit history.