The average American has over $90,460 in debt. While Generation X has the highest mortgage loan balance, millennials are not too far behind. On the other hand, baby boomers appear to have the highest personal loan balance.
Whatever your financing needs, having a little money on hand to open negotiations is handy. Yet your credit standing and purchasing requirements affect which loan types you can apply for.
Are you outfitting a new business? Do you want to give your mortgage a change, or get it cleaned up ahead of an appraisal? Are you looking for credit to buy a car?
What are you looking for and how do you narrow down your options?
This article outlines the various types of loans you can choose from when you need extra cash.
Let’s get started!
An unsecured personal loan is one that is not backed by collateral. This kind of loan presents a higher risk to the lender. That is why they usually have the highest rates of interest.
The approval of your loan will most likely depend on your credit score.
In contrast, a secured loan is contingent on collateral. In this case, in the event of non-payment, the lender may take ownership of your asset and sell it. Since these loans are backed by collateral, you will enjoy a lower rate of interest relative to unsecured loans.
A fixed-rate loan allows you to pay monthly installments at a fixed rate. This helps take the guesswork and pressure out of making payments. Consistent payments allow you to plan and budget for your month and year.
Variable-rate loans have a fluctuating rate of interest. This means that the bank sets a benchmark rate that can either rise or fall. During each month of payment, your installment amount will depend on this variable interest rate.
During the short term, this rate is unlikely to have drastic surges. That’s why it might work well for loans on smaller amounts or those that have a shorter repayment period.
A personal line of credit functions similarly to a credit card. Here you have access to a line of credit that you may borrow from as and when you need money.
You may have a limit up to the amount you borrow, however, you only have to pay interest on the cash you actually borrow. This works well as a safety net if you feel like you might need additional monetary assistance but are not necessarily certain.
This is also a good option if you don’t need a lump sum amount, but rather have ongoing expenses or unexpected financial emergencies.
Debt consolidation loans allow you to merge all of your debts or pre-existing loans into one single loan. This means you can repay all of your debts in a single periodical installment, rather than multiple installments for each loan.
While debt-consolidation loans allow you to save on interest and simplify the payment process they may not be available to you if you already have a low credit score.
A co-sign loan or a joint loan is contingent on another person repaying your loan in the event that you are unable to. This works well if you are someone with a low credit score.
If you do not qualify for the loan yourself, you can ask a friend or relative who does have a good credit score to co-sign the loan for you. This may even get you a better rate of interest.
Conventional loans are those that are not insured, backed, or guaranteed by the federal government. They are granted by private lenders. These can be banks or other types of credit unions. Further, conventional loans can either be conforming or non-conforming.
A conforming loan is one that adheres to the rules set by the Federal Housing Finance Agency or the FHFA. A non-conforming conventional loan is one that is designed with the borrower in mind.
To qualify for these loans you may have to jump through more hoops than a regular loan. Additionally, your interest rate may also tend towards the higher side. That being said, your overall borrowing cost may be relatively lower than a regular loan.
As discussed above, the Federal Housing Finance Agency or the FHFA has a set of rules and also a set borrowing limit. A jumbo loan is one that exceeds this limit.
This is a good option for someone looking to buy a particularly expensive home in a high-end neighborhood. However, it is not easy to qualify for these types of loans unless you have the assets or savings to show for it.
Payday loans are a good option for smaller expenses. These are usually due for payment in a single installment on your next payday.
Generally, as a borrower, you are expected to sign a post-dated check. If you fail to make the payment on or before your payday, the check will be cashed in. The terms for a payday loan may vary depending on the lender.
In some instances, you may have to repay the loan in multiple installments due on your monthly paydays.
Now that you are familiar with the various types of loans out there, you are better equipped to choose the right one for your needs. All you have to do is consider your credit score, the amount you need, how long you will need to repay the loan, and the kind of collateral you have to back it up.
Do you need to apply for a loan to repay a debt or an upcoming expense? We’ve got you covered. Head over to our website, type in your desired amount, and get access to your various loan options.