The thought of taking out a loan often has negative connotations in people's mind, but as long as you understand all the terms and conditions and are able to pay it back, a loan can be very beneficial. Sometimes, businesses and individuals need additional funding for production expansion, a new house, a new car, or for college education. Whatever the reason may be, taking out a loan could be the right decision to get that extra funding you need, when you need it. This article will explain the different types of loans, their pros and cons, and the situations when you will most likely need to take out a loan, so that you know exactly when you are ready to do it:
1. When you Need to Make Immediate Payments for Expenses
Sometimes in life, you find yourself short on cash and you don't have any other option or emergency fund to pay for everyday costs of living, that is when you need to consider getting a loan. If you just need money for a few days or weeks before your next paycheck, you can get a payday loan. This is the type of loan that helps you make ends meet until your next paycheck.
You can borrow as much as six month's salary through a payday loan, however, to be qualified for the loan, borrowers must be at least 18 years of age, and they need to have proof that they have been earning a certain salary. Each lender has a different minimum salary level so make sure to shop around for one that suits you. The interest for payday loans is also usually higher, if not the highest of any type of loan, so it is important to understand all the terms and conditions before you decide to get a payday loan.
2. When you Need Money for an Investment Now that Promises High Returns in the Future
Whether you are financing a business expansion that could lead to greater profits, or an education that will help you get better, high-paying jobs in the future, or a car and a home that will allow you to have a more stable life, you may want to consider getting a personal loan.
There are two main types of personal loans: secured and unsecured. It is really important to understand how each of these works so that you can make the best decision about which loan to take out. The experts at https://www.bugiscredit.sg/personal-loan/ explain that the way it works for secured personal loans is that in order to secure the loan, you need to put up an asset as collateral. In the event that you fail to pay the loan back, the lender will be able to claim your asset in lieu of repayment. The collateral makes the loan less risky for the lender, thus the lower interest rates. Most people use secured loans for car loans or mortgages, and offer the car or the house as the security for the loan.
Unsecured personal loan, on the other hand, allows you to borrow money without having to offer any of your personal assets as collateral. However, this type of loan is usually contingent on the borrower's credit history. Since they are riskier for lenders, unsecured loans often have higher interest rates and require higher credit scores than secured loans. The borrower can decide which unsecured loan to apply for based on the bank's specific interest rates and fees and the duration of the loan. Examples of unsecured loans are credit cards and student loans.
3. When you Need a Flexible Loan for Long-Term Projects
If you are looking for a more flexible loan for long term projects, you may want to look into getting a line of credit. A line of credit can be issued by a bank or financial institution, and it can be secured or unsecured. The credit lines allow you to access funds to a set limit that is predetermined usually based on the borrower's creditworthiness, and then the borrower only needs to pay interest on the money actually withdrawn. It is similar to a credit card, except there is no actual card. There is no end date for this type of loan, and it offers more flexibility as you only need to withdraw money when you need without having to pay interest on the whole credit limit.
These are the different types of loans that will help you in short-term or long-term aspects of your life. Before getting a loan, always ask yourself if this is the only option possible to get funding, if you have a realistic reason to believe you will get more value in return, and if you have the capacity to repay it according to its terms and conditions. Understanding your needs and the kind of loan you are getting will ultimately help you make the right decision.
WRITTEN BYDaria Brown