On the hunt for a loan, but not sure where to start? That’s why we’re here. We will take you through some of the more common types of loans to choose the right one for your needs, whatever they may be.
Personal loans are probably the more common type and one that you may be familiar with already. They can be used for pretty much anything, which is why more people opt for them. The typical loan length is 12 to 60 months. This is dependent on the agreement you have with the bank and even how much money your personal loan is worth. Typically, the APR range is from 6% to 36%. The amount is dependent on a few different things; however, they can get as high as $100,000 or as low as $1,000. It really depends on what you need or your credit. Typically, you need a credit score of around 600-700 to get approved.
Online Title Loans
You may not be as familiar with online title loans as you are with personal loans. They are just as useful but are conducted differently. With a title loan, you will take the loan out against the legal documents stating the car is yours. Essentially, you will use your vehicle as your collateral damage if you do not pay back the loan. You will still have possession of your car, unless you refuse to pay. This can be a reasonably simple option as well. You can receive a loan on your car while still driving it.
You might be confused because we’ve mentioned a car, but title loans and auto loans are different. Auto loans are used to borrow money to pay for a vehicle you are purchasing, and you then pay off that loan in monthly installments. These can be 24 to 72 month-long leases, and the APRs can range from 3% to 7%. Auto loans are typically based on your credit score. If you have a good or decent credit score, then you shouldn’t worry about not getting approved. The consequence of not paying your auto loan is the repossession of the vehicle.
Student loans are used to pay for school or education-related expenses. This can include tuition, housing, books, food, transportation, etc. Whatever you need for your education. These are typically 10-25 year-long loans, usually private companies or from the federal government. Depending on where the loan is from will determine the APRs. You can get some loan forgiveness after 10 years for public service work, but this can vary.
Mortgage loans are what allow people to buy houses. They will enable the buyer to make payments on the home to the institution while living in the home. If they do not make payments, then the bank or institution gets the house. The length of these loans can vary from 10 to 30 years in 5-year increments—the APRs range from 3% to 6%. Your acceptance is mainly based on your credit score. Typically for a mortgage loan, you need a 620 for a private institution, but around 580 for a government-insured one.
Have you ever hear of a credit-builder loan? Many haven’t. It is a loan for those that don’t necessarily need money but want to rebuild their credit. But how does this work?
The person would make monthly payments to establish a history of on-time payments, which in turn increases your credit score. Then you would get all of the payments back in one lump sum. This can also be useful if you are trying to save. If you can’t seem to leave your savings alone and need to improve your credit score, this may be the perfect option for you.
Home Equity Loans
Did the personal loan sound nice, but you need to ensure you can get a more substantial loan amount? If this is your case, then a home equity loan is probably the better option for you. With a home equity loan, you are primarily using your home as the thing at risk if you don’t pay. You are using your home as collateral.
You can get a foreclosure if you do not pay back a home equity loan. How it works is they take the dollar value of your home and subtract what you still owe for it, and that is your loan amount. This is why you can possibly receive more here than with a personal loan. The idea is similar to a personal loan because like with it, you can use the money for anything you need, versus an auto or student loan.
Another option is to ask for a loan from your friend or family member. This is an excellent option because you can have a very low APR or almost none if that’s what you guys can agree upon. You can also have a more flexible repayment timeline because it isn’t through an institution, but someone you know.
A downfall to this is that because it is not through an institution, the payments will not count towards your credit score. Therefore, if you need a loan and need to improve your credit score, this may not be the right fit.
If you do decide to borrow from a family or friend, then you want to ensure it’s done correctly. You want to officially write up an agreement and ensure it is legally binding. This is super important for both of you. You don’t want anything to be open for debate or discussion in the future.
We hope this list of different types of loans is useful. It can be intimidating if you need a loan but don’t even know where to start. Evaluate your situation money-wise and also credit score-wise to ensure you can choose what is best for both areas.