People generally don’t know much about loans, which is not surprising. It’s not until we find ourselves needing one that we ever really think about loans. To begin with, the terminology can get really confusing. Also, deciding which loan is right for you can be a nightmare. So, let’s take a quick look at some of the most widely used loans and make things at least a little bit clearer.
PAYDAY LOANS
Many people mistakenly think that payday loans are the same thing as personal loans. They are not. Payday loans are pretty self-explanatory. They represent small dollar loans that help you get through the month until your next paycheck arrives.
They are secured against your next paycheck and you are required to repay them usually within two weeks or by your next payday, whichever comes first. The interests are usually very high, which many clients accept without complaining since they are in serious need of some cash and only intend to take the loan once. In other words, they don’t perceive it as a long-term solution for their money issues.
If you are interested in taking out a payday loan be sure to do a thorough research of the company you’re borrowing from before hand. In order to help you with this we compiled a list of the best payday loan companies on the market today.
PERSONAL LOANS
Unlike payday loans, personal loans are usually made for larger sums of money and for an extended period of time, much longer than 15 days. People take personal loans when they need a larger sum of money for some emergency issue or a major life event, whatever major expense needs to be covered. Personal loans are also often used to consolidate your credit card debt. Medical emergencies, education, major house repairs or remodeling, and vacations are also frequent reasons for getting a personal loan.
One important feature of personal loans is that they are unsecured – they are not secured against one of your assets, such as your house.
CAR LOANS
A car loan, as its name suggests, is a loan you take when you want to buy a vehicle, whether it’s new or used, but you don’t have enough money. The bank or another lender gives you the funds to get the car, which you repay over a predetermined and scheduled period of time, almost always with interest. The amount you borrow, which is the amount you need to buy the car, is called the loan principal.
Car loans or auto loans should not be confused with title loans, in which your lien-free vehicle title is used as collateral when borrowing money from a lender.
If you are interested in auto loans be sure to check out our auto loan companies reviews and ratings.
STUDENT LOANS
Another very common type of loan is the student loan. Again, this one is self-explanatory, but there’s no harm in making things even clearer. A student loan is a loan you take to pay for your education. Nowadays, it’s extremely difficult for a person to put him or herself through college and parents don’t have the funds they once had to support their children and pay for their expenses while they are in college. That’s where student loans come in. A student loan pays for your tuition, living expenses, textbooks and any other expenses you might have that are related to your higher education. The biggest difference between student loans and other kinds of loans is that they usually come with lower interest rates and the repayment is often deferred until you finish college and start working so you can actually afford to repay the loan.
SMALL BUSINESS LOANS
The first few years of a new small business can be particularly rough, regardless of the industry. That’s why many loan companies offer small business loans, designed to help such businesses stay afloat. In many cases, lender companies accept even companies with less-than-perfect credit scores, as long as they feel the business is stable enough to eventually repay the loan. The repayment is done on a weekly or daily basis in order to follow the business’ cash flow and avoid the excessive accumulation of penalties and fees for late or missed payments. These loans are convenient for businesses that struggle with profit, especially early on, as they allow them to keep working and making money while gradually repaying the loan.
MORTGAGE AND HOME EQUITY LOANS
Finally, there’s the big M – mortgage, the largest debt that most people take up on. Simply put, a mortgage is a loan that allows you to purchase a home. It’s repaid over an extended period of time – usually 15 to 30 years, during which you are required to make monthly payments to the lender, with interest.
A home equity loan, also known as a second mortgage, is a loan approved to the homeowner against the equity of their home. It is paid each month on top of the mortgage you’re already paying.