Loans are part and parcel of our day-to-day lives.
Even the most financially disciplined and successful folks need to borrow at some point. As long as you are a responsible borrower who knows how to plan their finances, you shouldn’t get into financial trouble.
It’s also possible to become overwhelmed by debt if you are not careful when borrowing. When you have one or several active loans, there are a few ways you can reduce your loan payments and save more. Being a smart borrower entails maintaining a high level of discipline with your finances from the start and understanding the various types of loans available. Here are some types of loans you might need at some point.
1. Business Loan
When running a business, you need a steady flow of cash to finance operational costs, pay workers, clear utility bills, get inventory, and so forth. However, you may not always have enough in your account to fund these business needs. This is where business financing comes in. There are many different types of business loans, some of which include:
- Payroll funding
- Asset-based finance
- Equipment financing
- Working capital loans
- Invoice factoring
The best loan for you will depend on the kind of business you are running and the situation you are in.
2. Personal Loan
In layman’s terms, a personal loan refers to a loan given to an individual to fund personal needs. This includes needs such as making huge purchases, settling other debts, paying for college fees, and so forth. The loan can either be secured or unsecured:
This is when you take a loan against some kind of collateral or security. It could be a car, your business, home, or certificate of deposit. These loans are great because the interest rates are often lower since lenders consider them less risky. The catch is that if you are unable to pay the borrowed money back, your assets could be seized.
Here, no collateral is required to acquire the loan. However, these loans tend to have higher interest rates, and the lender may be extra keen on your credit history. Nonetheless, this type of personal loan can be great for debt consolidation and or extra funds when you need to make huge purchases.
3. Credit Card Loan
Apart from offering the ability to make purchases without a positive bank account balance, a credit card may also allow you cash advances at an interest. It gives you the option to get a cash advance from the ATM and payback within a specified term, usually 30 days. However, credit card cash advances are often associated with high-interest rates and penalties for late payment. They may not be the best option unless you are highly disciplined when it comes to cash.
4. Payday Loan
As you can tell from the name, payday loans are loans you take up to fund an emergency and pay the money back at the end of the month or your next payday. For those who want to quickly get funded, payday loans are among the most popular types of loans these days. They can be accessed online, and the funds are usually processed instantly after making an application. To get the best deal on payday loans, some things you may want to consider before applying include:
- Lender reputation
- Loan amounts
- Loan fees
- Loan term
They are best for those times when you are in a fix and need cash urgently to fund an emergency. The loan fees can be slightly higher for these short-term loans, but it could be worth it considering your urgency for cash. They are also a considerable option for those without credit or with a poor credit score.
5. Title Loans
Title loans are usually available for those who own cars. Most of these loans allow you to borrow from 25% to 50% of your car’s current value. The car title acts as collateral for your loan, and the lender may keep it until you clear your dues. The time given to repay the loan differs from one lender to the other, and you could lose your car in case you fail to pay the borrowed money.
Finally, those who have homes may be able to tap into their valuable assets and borrow against the home’s equity. Remortgaging is also a common borrowing option for homeowners. Whichever type of loan you choose to take from the above, you will need to borrow only when you must, make your repayments on time, and focus on clearing your loans. Combined with smart investments and savings, this will build you a path toward financial freedom.