Borrowing is something that all of us need to do at some point in our lives. Whether we're young or old, you can be sure that the time will come that we find ourselves just that little bit short. The good news is that there are many options that can help you deal with an unexpected financial turn. What isn't such great news is that, with so many options available, it can be difficult to know where to turn.
There are dozens of different types of loans to choose from. Each of them come with their own unique set of pros and cons. Which one you should opt for depends entirely on your circumstances. If you don't know much about the world of credit or borrowing, though, how can you know what to choose?
Different loans will offer solutions to a variety of problems. A student loan, as we know, is an entirely different ball game to a personal equity loan. You're not going to see the two cross paths anytime soon. So, it's crucial that you don't wade in the wrong direction. The consequences could be disastrous. Borrowing money is always a serious decision and should never be taken lightly.
So, with that being said, let's review some of the more common loan options available and which one suits which circumstances. This guide is written with the intent of guiding you through the borrowing process. And to help you make an informed decision on your loan options. There are a few of them to get through, so let's jump to it.
Personal Loan
This is by far the most commonly utilized loan option out there. And it's easy to see why, if we dig a little deeper. They're undoubtedly cheaper than other options and present far less downside. The interest rates, while not insignificant, are relatively harmless in comparison to other options. Don't get me wrong, you will be paying back more than you borrowed, but not nearly as much as you could be.
Personal loans are often a catch-all solution for many people. It doesn't really matter what you need the money for. Provided you have a good credit rating, most banks will give you serious consideration. Those without good credit will be more likely to turn to payday loans as an option. Keep in mind, though, that there will be a limit as to how much money will be allocated for you to borrow. Rarely will the total exceed a few thousand.
You'll more than likely have to present evidence of your income before being accepted. This is so that banks know you have the financial means to make the repayments. It's not an uncommon practice by any means, so don't be alarmed. You may also have to provide proof of your assets. If you own your own home or car, for example, this will be taken into consideration.
Credit Card
We've all heard about the potential repercussions of owning a credit card. And you absolutely should proceed with caution. It's very easy to fall into a trap when it comes to spending with a credit card. You often neglect to pay attention to how much you're using it. That will find you getting stung when you get your bill in the post. By no means should credit cards be treated as an unlimited pot of money.
Remember, everything you spend on your credit card will have to be paid back promptly and with interest attached. It's extremely easy to fall into bad habits when it comes to purchasing with a card. I'd hazard a guess that it's the quickest way people plummet into a spiral of debt. They are incredibly easily to apply for, and with a good credit score you're likely to be accepted.
The benefit of a credit card is the sheer flexibility that they afford you. Your card will be accepted pretty much anywhere. From your favorite shops to your local bar. Provided they have a card reader on the premises, they'll take it as a form of payment. On the one hand, it makes it a convenient payment method. On the other, you may find yourself falling into some bad habits.
Equity Loan
Most often the solution for homeowners, equity loans provide assurance to banks. Not entirely unlike personal loans, the differ in that you give them a guarantee regarding your repayments. The homeowner will take out a loan in relation to the value of their house. Given that it's such an exuberant amount of money, they're usually used in the face of financial crisis or for big repair jobs.
The upside of equity loans are that the interest rates are often fairly minor. This is because the bank as assurances that you'll meet the repayments. But that's also one of the downsides. Failure to make your payments on time could result in you losing your house. That's why it's crucial that you subsidize these loans with insurance. But for a long-term loan solution, you could do a lot worse.
Business Loan
The clue is in the name. This one will only be of interest to you if you're in the midst of (or plan to) running your own business. All startups need funding of some kind. Whether that's from an investor or straight from your own pocket is down to your personal circumstances. On the occasion that neither of those is plausible, people turn to business loans as a solution.
They're not unlike a personal loan. Instead of supplying your income information, though, you present business plans. The bank will then analyze your plan to determine whether it's a venture worth investing in. You'll likely have to put your assets up against the loan in case of failure. That way, the bank can recoup their money, even if you don't make a go of it.
Keep in mind that interest rates may vary from lender to lender. There may be room for negotiation, depending on your bank. That doesn't mean it's a good idea to take out more than you can afford to repay, though. Less is always more.
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