Applying for a loan can be a slightly complicated process. This is something that is not helped by the fact that there are actually several different types of loans available for you to choose from and also the fact that applying for the wrong type of loan can result in rejection.
If you ignore these issues and the amount of legal jargon that is used by the majority of loan providers, you should be able to find the right sort of loan for both you and your needs. In most cases, the lending of the money itself is simple – it’s the paperwork that’s so confusing.
The fact that there are multiple different types of loans can actually work in your favor once you figure out how to fill out the application forms for the right type of loan that you need. So, that’s the part we’re here to help you with by giving you a guide to different types of loans.
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The majority of both online and in-store banks will offer personal loans which can be used for a whole host of applications, from paying bills and rent to treating yourself to something new.
However, a personal loan isn’t always the best option, as they tend to be a more expensive way of securing extra money due to the loan itself being unsecured. All this means is that there is no collateral put up by the borrower making it more of a high risk for the lender.
Credit cards basically allow you to take out a small, short-term loan whenever you purchase something using this payment method. It’s a pretty useful system as long as you’re confident that you will be able to pay it back on time before any of the interest fees are incurred.
If you allow your debt to roll over to the next month without paying off the minimum amount, you will be charged interest which can end up being expensive or can lead to revolving debt.
Home-equity loans allow you to borrow money against the equity that you have already built up with with your house. They are slightly more limiting than certain other types of loans as you can usually only borrow up to the same amount as what you own of the house.
For example, if you have only paid off half of the mortgage by the time you apply for a loan, you will be able to borrow up to half the value of your house with a home-equity loan.
Home-Equity Lines of Credit (HELOCs)
This essentially works like a credit card, but just like with a home-equity loan, the amount up to which you can borrow is directly related to your home equity which is put up as collateral.
You can utilize a HELOC for up to 10 or 20 years and your available credit can be used, repaid, and then reused if needed for the entire duration that the account remains open.
Credit Card Machine Advances
If you have a credit card account, you can often check to see if there is a cash advance feature available for you to use if you are ever left in a tight financial position.
However, this isn’t the wisest way to borrow money as it can end up being extremely expensive. The interest rates associated with lending money through a credit card machine advance are typically very high and costly, so you should only really do this in an emergency.
Small Business Loans
Lastly, we of course had to include small business loans, which are offered by the majority of banks or they are also available through the Small Business Administration (SBA), usually for a period of up to 25 years and sometimes with negotiable interest rates.
They are not just handed out to anyone, however. The application process for a small business loan involves the creation and submission of a formal business plan for review. This will determine how much of a risk you are as a borrower and whether you are accepted.
With a small business loan, there is a small but valid chance that you might end up having to worry about your personal assets and finances as this type of loan tends to include a personal guarantee that means you will be personally liable if you default on the repayments.
As you can see, there are plenty of options available if you’re looking to get a loan.
Finding the right loan is all about what will suit your needs, so remember that personal loans and credit cards require no collateral but will have high interest rates, whereas home-equity loans have low interest rates but require significant collateral.