Life happens, and sometimes when it does you may not ready for the financial strain it puts on you. College, medical bills, home expenses, and more can pop up before you have the money to pay for them, but those things can’t wait. Luckily, it’s possible to take out a loan to help you through these times.
There’s not a one-size-fits-all loan, though, so when you decide to look for one for your needs it can get confusing. Understanding each type of loan can help you determine which one is right for your financial situation.
This type of loan is an unsecured loan that does not need credit check or any collateral for you to be approved for it. They have better terms than a payday loan – lower interest rates, quicker payoff schedules, and no need to put your possessions on the line to get one. Personal loans are usually affordable and easily accessible, so if you are looking for a small amount of money paid to be paid back quickly, this may be the way for you to go.
Line of Credit
Similar to a credit card, approval for a line of credit grants you access to a predetermined amount of money, to be paid off on a preset schedule. During that preset time, you can pay off as much as you want and reuse it again as you need to, but it must be paid off by the end of the loan’s due date. These types of loans are not generally used for one-time purchases. They are common with people who are having an extended financial issue or large renovations.
Unlike a personal loan, where you can obtain small amounts of money with no collateral, a secured loan allows you to leverage your personal property in exchange for a higher loan amount. These are often used when you are attempting to purchase a house or other large investment. In a secured loan, the interest rate can vary depending on the value of the property that you are leveraging. Personal property often used to obtain a secured loan includes items like savings accounts or CDs, vehicles, and homes.
These types of loans must be applied for and then paid off, so the loan amount decreases every time you make a payment. You cannot reuse the credit granted to you as you can in a line of credit. These types of loans are common for people who need a specific amount of money one time, like with a home mortgage or student loan.
What Loan is Right For You?
Before you decide which type of loan to apply for, consider your future financial needs for the next six months, year, and two years. If you will only need the loan once, you can look into those options, but if you may have a need for another loan in the short-term future, consider a line of credit.
Do your research, check out each lender’s website, and make an informed decision for your next smart financial move.