The Different Types of Loans
Depending on a borrower’s specific need determines what type of loan they should try to obtain. Loans range from personal to business to just about everything in between and knowing what some of the most common loans are available will help potential borrower’s make an informed decision about the type to choose. There are basically two types of loans, secured and unsecured.
Secured loans are any loans in which the borrower provides something they own, such as a car or property, as collateral on the loan. What this means is if the borrower defaults on the loan, the lender has the right to come and take the collateral away in exchange for payment. The length of the loan depends on the life of the collateral used to secure the loan.
Most borrowers would secure this type of loan in cases where their credit would not allow them to get an unsecured loan. These types of loans have good terms and interest rates and the repayment period is usually reasonable. It also gives the borrower the incentive to make sure their payments are made as timely as possible because if they are not, the lender has the right to take or ‘repossess’ the property. Two of the most well-known types of secured loans that can be internationally found are mortgage loans and vehicle loans.
Unsecured loans, on the other hand, are monetary loans that are awarded the borrower without the borrower having to offer anything as collateral. Interest rates on unsecured loans vary from the interest rates on secured loans. The repayment terms may also be for a shorter length of time. These types of loans are determined solely on the basis and merits of the borrower’s credit ratings. Personal loans, credit cards and lines of credit are all types of personal loans.
Payday loans are an emerging form of loan. They are becoming immensely popular for people who are looking to get hold of cash for a very short period of time. The good thing about payday loans and what makes them popular is the way that they are non-imposing. Lenders don’t ask why the money is wanted which can take away the embarrassment, especially if the loan is needed to pay a debt.