A loan is a great way to fund an upcoming expense or help with budgetary shortfalls in the short term. There are many different types of loans available, each with its set of pros and cons that should be considered before signing on the dotted line. When taking out a loan, it’s important to know your options to find the one that best suits your needs. Here are three common types of loans you might need.
Personal loan
A personal loan is used to pay off an expense or fund a large purchase that you can’t pay in full with your savings. Personal loans can have variable or fixed interest rates and can be repaid over a few months or several years. Since they are unsecured, they don’t require collateral.
This makes them a good choice for short-term loans. Personal hardship loans often come with higher interest rates than other types. However, if you will only need it for a short period and you can pay it off quickly, a higher interest rate might be worth it. According to the experts at Lantern by SoFi, “hardship loans often offer deferred repayment options to give you some breathing room when it comes to paying back the funds.”
Mortgage Loan
If you are looking to buy a home, a mortgage loan is likely the type of loan you will be approved for. Mortgages are long-term loans that are secured by real estate. If you don’t make your mortgage payments, the lender can legally pursue legal action. This means that you will risk losing your home if you stop making payments on your mortgage.
In general, mortgage loans have fixed interest rates and are amortized over a fixed period of time, such as 30 years. Mortgages have a higher approval rate than other types of loans, but this is often because of the amount you are borrowing and the size of your down payment.
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Auto loan
An auto loan is an unsecured loan that you take out to purchase a car. Auto loans are often made for new-car purchases, but you are also able to finance a used car with an auto loan. However, auto loans are secured by the vehicle being purchased, so if you don’t make your payments, the lender can repossess the vehicle.
Depending on the type of loan you have and the interest rates, you might only have to put down a small amount of money towards the purchase of your car. The amount you put down will have an impact on your interest rates. Your interest rate is impacted by your credit score, but most auto dealerships will run a credit check.
You can quickly get the money you need with loans, but they can be extremely expensive if you don’t know the loan’s terms and conditions. Before taking out a loan, be sure to do your research and understand the terms and conditions of the loan so you can make an informed decision. All three types of loans will typically require a credit check as part of the application process, so make sure you are ready to disclose your full credit history before applying.
