Different Types of Loans and Which is Right for You

148

There are several types of loans that you can take out if you find yourself in need of money. Some fast cash loans from QVcredit are good for borrowing small sums of money and others are best for borrowing large amounts.

It is likely that at some point in your life you will need to take out a loan whether it is for a house, a business, or for smaller personal expenses. As a result, it is always a good idea to have a base-level knowledge of different types of loans. 

Below, are four types of loans and examples of things you may buy with each loan type.

Personal Loan

There are many formal types of loans that are considered personal loans because they are given to cover personal expenses. 

For the purposes of this article, a personal loan is a loan given to you informally by another person. That person can be family, a friend, a friend of a friend, and so on. This loan comes from someone you know on a personal level, and with that personal relationship comes a lot of flexibility.

Personal loans are less likely to charge any interest because your friends and family are not looking to profit off of you. If they are offering to lend you money, the offer is coming from a place of care and not the desire to profit.

However, it is not a good idea to borrow a lot of money from people you have a close personal relationship with because money can too easily corrupt friendships. You don’t want to borrow so much money that you can’t pay your friend or family back because this can shatter your relationship.

Instead, only borrow small amounts of money for things like utility bills or low-cost emergency situations. 

Payday Loan

A payday loan is another great option if you need a small loan quickly.

Essentially, a payday loan is a small loan that you are given upfront under the agreement that you must pay back the loan with your next paycheck. In a way, this loan is a pay advance that comes from the loan company instead of your employer.

Payday loans are good if you need to pay rent or other bills by a certain date, but you do not get paid until after that date. The important thing to remember about payday loans is that you must pay them back with your next paycheck. 

A loan agreement is a binding agreement and you must follow through on your commitment to the loan company. Therefore, you should only borrow the minimum amount of money that you need, and you should calculate this minimum based off of how much money you expect to make from your next paycheck. 

Formal loans are all about being responsible, and payday loans give you a chance to prove that you are responsible, even if you have less-than-stellar credit.

Private Loan

A private loan is great for larger amounts of money. These loans are similar to payday loans, in that they are not from a bank but from specialized financial companies that are okay with loaning to people with below average credit. 

The difference between a payday loan and a private loan, though, is that private loans do not have to be fully paid back within one paycheck. This means that you can borrow a large amount of money for a variety of expenses. 

Private loan companies will give you a loan for a down payment on a car or even a home in the form of a ‘personal loan’ that is given to you for personal expenses. In this sense, the loan is not a direct mortgage or car loan, it is simply given under the personal expenses umbrella that you can choose to apply to any expenses you see fit. 

These loans are great if you do not have good credit, but just remember that interest rates are the highest for those with the lowest credit score.

Bank Loan

A bank loan is the most difficult loan to get, but it also has some of the lowest interest rates. Credit unions are also included in this section because both are more formal loans with stricter credit requirements. 

Unlike private loans, bank and credit union loans can be used for house mortgages and car loans directly. They can also be granted for other personal expenses like medical bills. 

Bank and credit union loans are very picky when it comes to acceptable credit scores. The minimum credit score they require is often quite high, and the requirement increases when the amount of money you are trying to borrow increases. 

Loans can seem complicated and overwhelming, but if you understand the differences between different types of loans, it will be easier for you to choose the one that is right for you.

Comments

comments