A loan enables an individual to borrow an agreed-upon amount of money then pay it back via a repayment schedule. Because they are more predictable than credit cards are, loans are much easier to budget for. However, the interest rates are typically higher for the purpose of borrowing small amounts.
There are a number of different types of loans available to anyone that is in the market for such a financial product. Each one of them comes with its own advantages and disadvantages so it is important to be aware of these to understand which one can work best for you and your needs.
Secured loans
These types of loans use a financial asset, like a vehicle or a property, to act as collateral. This means that the individual could potentially lose the financial asset if they fail to keep making regular payments. If there is no danger of payments not being made, then a secured loan is a good option to go for. Because there is collateral behind the loan, the risk is reduced for the lender and so often the interest rates are much more favorable and affordable. This is true even for those individuals that have a low credit score.
Payday loans
These are typically short-term loans and involve smaller sums of money. The reason for their popularity is due to how easy they are to get. Lenders such as Net Pay Advance make it really easy to apply for a payday loan in just a matter of minutes. However, some lenders do charge higher than average interest rates and so these can end up being really expensive. With this type of loan, it is best to shop around to find the lender with the best interest rate.
Guarantor loans
In order to get one of these types of loans, an individual must have a guarantor in place. This is someone (friend, family member, work colleague) who agrees to repay all of the loans back in full if the person borrowing the money cannot themselves. Because of this, the risk is spread across two people, which is not ideal but for those individuals with a poor credit score, this may be the only way that they can secure a loan at all.
Unsecured/personal loans
With these types of loans individuals typically only borrow a smaller sum of money, although potentially they can lend large sums. Lots of people turn to them when making large purchases in order to spread out the cost into more affordable chunks. Because it is unsecured, there is no need to use a financial asset as collateral, thus lowering the level of risk. In order to get a good interest rate with this type of loan, an individual will need to have a good credit score.
Car finance loans
Car purchases can be financed in a way so that the cost is spread out across a period of time, thus making it more affordable. These are known as car finance loans.
