Loans, when used correctly, are a great financial resource for obtaining things that would otherwise be hard to do on your own. Whether you need assistance buying a car, a home, getting a higher education, or paying down some debt, there is essentially a financing opportunity available. To take full advantage of the benefits of a loan, it is imperative that you fully understand and apply for the product that is best designed for your financial needs and budget. Below, are a few types of loans, requirements, and other facts to help you make a more informed borrowing decision.
Short-Term Loans
For those who are trying to borrow money, but don’t have good creditworthiness, a long resume, or collateral to offer up, short-term loans are the next option of borrowing. Here is some information you should know about taking out short-term loans.
- Short-Term loans are unsecured – Like personal loans, short-term loans are unsecured, requiring no collateral.
- Maximum borrow amount – Borrowers could receive between $100 – $1250
- Eligibility requirements are Lenient – For short-term loans like installment loans which are payday loan alternatives, the eligibility requirements are a lot more lenient. Instead of needing a high credit score, a long job history, and collateral, applicants are generally required to be 18 years of age, have a valid checking or savings account, and meet minimum monthly income requirements.
- Pros of short-term loans – Short-term loans offer a lot of advantages. They are easy to apply for online. The decision is made in seconds. Applicants can receive funds in just 24 hours. Like personal loans, they can be used for anything you’d like. They offer flexible repayment options.
- Cons of short-term loans – There are a few setbacks to short-term loans. As they are unsecured loans offered to those with less than perfect credit, the interest rates can often be a lot higher.
- Best to use when – Short term loans are best to use when you’re in a quick financial jam (that can be resolved within 30-90 days) or need a small amount of cash to handle a personal emergency. They are not designed for getting out of debt or long-term financial issues.
Personal Bank Loan (Unsecured)
It can be quite common for the bank to be one of the first places of interest when trying to borrow funds. Local banks offer customers attractive discounts and promotions to entice them to take out a personal loan. If you’re going to apply for a personal loan from a bank, here are some things you need to know:
- Personal loans are typically unsecured – Personal bank loans are typically unsecured, meaning there is no collateral required to obtain one.
- Maximum borrowing amount – Borrowing range will vary but can be anywhere from $1,000 to $10,000+
- Eligibility requirements are strict – Eligibility for a personal loan from a bank will include having a credit score of 650 or higher, verifiable and reliable source of income, a permanent place of residence, a banking or checking account (in some cases, with the bank you wish to apply with).
- Pros of personal loan – Personal loans can be used for any financial purpose and don’t require any form of justification. Meaning if you want to take a vacation, buy a new wardrobe, or pay down debt you can do so with a personal loan.
- Cons of personal loans – The downside to personal loans is that since there’s no collateral involved, they are considered high-risk products. Lenders will have steeper eligibility requirements. It’s also not the fastest process as it can take days for an approval and weeks for the funds to be deposited.
- Best to use when – These are best to use when you need larger sums of money and more time to repay ( 12-36 months in most cases). They are best for those who have great credit and employment history.
Secured Personal Loans
Secured personal loans are loan products offered to consumers who have collateral to offer. This might include a car or mortgage loan. Here’s what you should know:
- Secured personal loans require collateral – This means you’ll need to have something of value such as a home or car just in case you don’t repay.
- Borrowing range – Borrowers can get as little as $1,000 to as much as $100,000+ (larger amounts are offered for purchasing a home and/or car)
- Eligibility requirements are less strict – Since you have something the lending company can take if you don’t comply, the eligibility requirements aren’t as strict.
- Pros of secured loans – You don’t have to worry as much about your creditworthiness. They can also be great for rebuilding credit.
- Cons of secured loans – If you fail to repay, you could end up losing something you really care about.
- Best to use when – You need a large sum of cash but don’t necessarily have the best credit for an unsecured personal loan.
Now you have a bit more info on lending products, requirements, and the best times to use them. Based on your creditworthiness, employment, and personal budget, you should be able to discern which product is best for your immediate circumstances. Remember, no matter what type of loan you take out, the key to keeping it from causing more drama is to be a responsible borrower.