Borrowing money from a bank a.k.a. taking a loan is quite a common occurrence these days. Be it for a new house or to purchase a car or to start a business, sometimes we all are in need of some extra cash, immediately.
However, all loans aren’t the same. So if you ever need to borrow money, you’ll first need to decide which type of loan is best suited for your situation and needs. Here are 5 different types of loans you should know about.
Bridging loans act like it’s name – a bridge – and can be used to borrow money for a short period of time, or for an interim period. In other words, it helps to ‘bridge the gap’ if you need some money till you get some money (example, if you want to buy a new house or car before selling your old one).
Payday loans are also known as short-term loans (usually for a few months) and are usually for smaller amounts (between £100-£1000). They are used to meet emergency costs, such as hospitalisation, boiler repair, or anything else that you otherwise cannot pay for from your monthly earnings or savings.
Something to keep in mind here is that you will need to agree that the loan company can take its payment from your debit card on the day your next salary comes through; unless you have an agreement with your lender to extend the date.
This is another option for when you need to borrow fast cash. You will need to take a personal valuable item such as jewellery or an expensive electronic item, into a pawn shop and borrow money based on the item’s value. In other words, items of personal property are used as a collateral.
The loan terms depend on the pawn broker or pawn shop, but this is a good option for small loan amounts with no credit check and are also an option if you don’t qualify for a personal loan.
Personal loans are the most common type of loans for bigger amounts of money or major purchases (like consolidating debt or paying for a wedding), and can be put into two groups – unsecured and secured personal loans.
Unsecured personal loans don’t require you to put any collateral (like a home or a car) on the line in case you default your loan.
Secured personal loans will need you to offer up some type of collateral to ‘secure’ your loan. There are some benefits, however, over an unsecured personal loan – they come with lower interest rates as the lender considers a secure loan less risky than an unsecured one.
This is an option for when one has a low credit score – the person applying for the loan has to put forth a ‘guarantor’ who would agree to be responsible to pay off the loan should it forfeit. In this case, the guarantor will need to have a good credit history, and would usually be a close family member.