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8 Different Types of Loans You Should Know About

It is important to note that not all loans are created equal. You will first need to decide which type of loan would be best for your situation if you need to borrow money.

It is often the case that your credit score is one of the most important factors when you start looking for loans. There are a number of factors that go into determining your loan approval and terms, including the interest rate.

In order to assist you in getting started, we will take a look at eight types of loans and the advantages they have. As part of our discussion, we will also discuss things you should consider when making your decision.

  1. Unsecured personal loans

There are a variety of reasons why people use personal loans, ranging from paying for wedding expenses to consolidating debts. It is possible for personal loans to be unsecured loans, which means that if you default on the loan, you will not be required to put up collateral like a house or car.

Best for debt consolidation and major purchases

A personal loan can be of help to you if you have high-interest credit card debt that you want to pay off sooner rather than later. In order to consolidate your debts with the help of a personal loan, you would need to apply for a loan in the amount that you owe on your credit cards. In the event that you are approved for the full amount of the loan, you would use the loan proceeds to pay off your credit cards and instead make monthly payments on your personal loan.

You may be able to get a lower interest rate on a personal loan depending on your credit history, and a lower interest rate could mean big savings for you. It may be helpful to have an idea of what an average debt consolidation loan rate might be in order to make an informed decision.

In addition to financing a major purchase, such as a home improvement project, or if you have other major expenses like medical bills or moving expenses, a personal loan can also be a good option.

Be careful about credit requirements and interest rates

Since unsecured personal loans do not require collateral, lenders will often look at your credit reports and scores to determine if you would be a good candidate for a loan. The general rule of thumb is that people with a higher credit score will be able to qualify for better loan terms in general.

Even if you have a fair or poor credit score, you may be able to qualify for an unsecured personal loan. Nonetheless, you might want to browse around to make sure the interest rate and monthly payment are both affordable for your budget before agreeing to apply for a loan.

  1. Personal loans with guarantee

In order to get a secured personal loan, you will be required to provide some form of collateral, such as a car or a certificate of deposit, as a form of guarantee on the loan.

Best for lower interest rates

An unsecured personal loan usually carries a higher interest rate than a secured personal loan. The reason for this is that the lender may be inclined to view a secured loan as less risky (since your loan is backed by an asset). You may be able to save money on interest on a secured loan if you do not mind pledging collateral and you are confident that you can repay the loan.

Beware of possible loss of assets

It is important to note that when you use your collateral to obtain a loan, you run the risk of losing the property you pledged as collateral. Your car or savings might be seized by your lender if you default on a personal loan, for example.

  1. Payday loans

Typically, payday loans are short-term, high-cost loans that are due on your next payday. As each state regulates payday lenders differently, there can be a difference in the amount of money that is available for loans, the interest rates, and the amount of time you have to repay your loan. There are also some states that have banned payday loans completely.

In order to repay the loan, you usually need to write a post-dated check or authorize the lender to automatically withdraw the amount you borrowed, as well as any interest or fees, from your bank account in order to repay the loan.

Best for emergency cash when you have no other options

There are typically no more than $500 in payday loans. A payday loan can be helpful if you are in a tight spot and do not have any savings or access to cheaper forms of credit available to you.

Beware of high charges

In the case of payday loans, the fees are often very high, which can result in an annual percentage rate, or APR, of 400%, which is much higher than the average annual percentage rate, or APR, associated with personal loans, which is about 10% to 11% over a term. Based on the Federal Reserve’s statistics, the 24-month period is the most common.

  1. Car Title Loans

You may be able to get a car title loan if you own a car. It is usually possible to borrow between 25% and 50% of the value of your car depending on the lender. In accordance with the Federal Trade Commission, title loans usually have an amount of $100 to $5,500, and you will generally have to pay back your title loan within 15 to 30 days, depending on the lender. In the event that you do not, your car could be repossessed if you do not comply.

As a general rule, car title loans have high triple-digit annual percentage rates. In order to be approved, you will need to surrender the title to your car until you have paid the full amount of the loan, including any fees associated with it.

Best for quick cash when you have no other options

If you own a car and are unable to borrow money anywhere else, a car title loan can give you access to the cash you might otherwise not be able to access in the event of an emergency.

Be careful with vehicle impoundment

If you are unable to repay your loan in accordance with the terms of your contract, you may continue to accrue fees while your lender continues to hold onto the title of your vehicle. In the end, your vehicle may be repossessed by the lender.

  1. Pawn Shop Loans

Another type of loan that is very similar to the already known as quick cash Iwantpayday loan type option, is certainly a pawn shop loan, where you take an item of value, such as jewelry or an electronic device, to a pawn shop and borrow money based on the value of the item.

The terms of the loan vary from pawn shop to pawn shop, and interest rates can be quite high. It has been noted, however, that some states have stepped in to regulate the industry. It is also important to note that you generally won’t be able to get your pawned item back until you pay back the loan in full, even though the amount of time you have to pay back the loan varies from state to state.

Best for small loans no credit check

According to the National Association of Pawnbrokers, the average loan made by a pawnbroker in 2017 was around $150. In the event that you are not able to qualify for a traditional personal loan, you might want to consider a pawn loan. It is very unlikely that you will need to get a credit check in order to get a loan, and it is also less risky than getting a payday loan or a car title loan.

Be careful with the sale of your belongings

There is a possibility that the pawn shop might sell your items if you do not repay your loan on time. It is also possible that you will be charged additional fees and costs as a result of storing, insuring, or renewing your loan term.

  1. Alternative Payday Loans

It is important to note that an alternative payday loan is a short-term loan that is offered by some federal credit unions. This is a loan designed to be cheaper than a payday loan. It is estimated that alternative payday loans range from $200 to $1,000 and have longer repayment terms than payday loans: from one to six months instead of the usual few weeks that you would get from a payday loan.

Best for lower interest rates

If you’re considering a payday loan, see first if you qualify for an alternative payday loan (you’ll likely save money on interest). A federal credit union may not charge application fees for more than the cost of processing your loan application, up to a maximum of $20. Payday loans often charge $15 for every $100 you lend, which can equate to a triple-digit APR.

Beware of membership requirements

In order to qualify for an alternative payday loan, you will need to have been a member of a federal credit union for at least one month in order to qualify. It may be worth looking at another option if you are having trouble paying something right away and you are not a member of a credit union.

  1. Home Equity Loans

There is a type of secured loan known as a home equity loan that is a type of loan in which your home is used as collateral to borrow a fixed amount of money. The amount of money that you can borrow depends on the amount of equity in your home, which is the difference between the market value of your home and the amount that you owe on it. You are generally not allowed to borrow more than 85% of your home’s equity if you own it outright.

The best alternative for personal loans

Due to the fact that you are using your home as collateral, it is possible for you to get a lower interest rate with a home equity loan than with an unsecured personal loan. It is possible to use your home equity loan for a variety of purposes, ranging from home improvements to paying for medical bills, depending on your needs.

Beware of non-compliance

It is important to make sure your monthly payments are within your budget before you apply for a home equity loan. In the event that you default on your home equity loan, your lender can foreclose on your home, leaving you homeless as a result.

  1. Credit card cash advances

As long as you have your credit card, you may be able to take out a cash advance, which is a short-term loan that you will be able to take out against the available credit on your card.

The best to pay cash

The majority of businesses don’t accept credit cards, so if you don’t have cash on hand to pay for something you need, a cash advance may be a good option for you if you don’t have any cash on hand.

Beware of surcharges and high interest

In spite of the fact that you are paying with your credit card, you will not necessarily have the same interest rate on a cash advance as you would on a regular purchase. There is a possibility that you will accrue interest on your money as soon as you withdraw it, and you may also have to pay a processing fee as well.


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