After studying all the papers staring you from your study desk, you realize you’re in way over your head financially, drowning in debt. You’re thinking of taking out a loan to fix your various debts, consolidate and clear them up, or you may be considering to get your first house, or buy a new car. Whatever drives you for wanting a personal loan, and even before you make a decision, understand that regardless of the type, a loan involves borrowing money and repaying it with interest. That’s what it’s all about. But, it helps to know the right kind of loan you’ll need for your purpose.
Convertible loans : These are the types used for business that allows a lender the choice to convert any outstanding principal amount of the loan into equity in the borrower’s business firm which could be worth more over time.
Fixed rate loans : This type comprises a large majority of personal loans. The interest rate is constant so you pay the same amount monthly until the loan is paid in full. The benefit is that it provides security, though the interest may be a bit on the high side compared to those with adjustable, fluctuating rate.
Installment loans : Most people take this kind of loan when buying a car or some expensive home appliance. It involves borrowing a set amount of money and repaying it with interest regularly over an agreed-upon set period.
Pay-day loans : These may be referred to as emergency loans because that’s what they’re used for. They’re generally small in amount and short termed and secured against your next paycheck. It’s one of the more expensive options though. It typically carries a high interest rate.
Secured loans : They’re called such because a borrower offers an asset like a piece of real property or a car as collateral to guarantee the loan is repaid. If you fail to pay, the lender gets the asset.
Unsecured/signature loans : Collateral for this kind of loan is not required. With you having a good track record on credit worthiness, a mere signature guarantees the loan. But due to it being high risk, interest rates can be extremely high too.
Single payment loans : Sometimes this type is also known as a bridge loan or an interim loan. It’s used for short term, temporary financing. It’s repaid with interest in one lump sum at the end of a set term. Pay-day loans are a good example of this type.
Your Next Steps:
If you’ve finally decided on what kind of personal loan will best suit your situation, here’s what you need to do to get your hands on that cash.
1) Make sure your credit standing is good. Get a copy of your credit history. Review and fix it if there’s any error or problem.
2) Check out your credit score. If you’ve got it over 700, you’ll get the good deals.
3) Shop around for a respectable lender and make it a point to compare the APR’s, (annual percentage rate). Naturally, the lower the better.