There certain times in life when we need to spend more cash than we have on hand. The most common way is to borrow the money and pay it back a little at a time if you have reasonably good credit. A personal loan is a type of loan that can be made without collateral, so the lender has no legal recourse such as foreclosing a home loan or repossessing your vehicle for non-payment. It’s used for everything from funding an education, sorting an emergency, financing a new business venture to purchasing luxury items or taking a lavish vacation. Whenever you are looking to obtain a personal loan, it is critical to understand that there are many new, different personal loan options to consider. Among them include:
An installment loan is repaid with a set number of scheduled payments. What happens is you borrow a specific amount of money from a lender and you agree to pay the loan back, plus interest, in a series of monthly payments. To qualify for an installment loan, a lender will look at your credit score, your annual income, and your debt-to-income ratio.
A payday loan is sometimes also known as cash advance. It is a small, short-term loan secured against your next paycheck (expected to be paid in a lump sum) and is typically used for emergencies only. It carries exorbitant interest rates, excessive fees and is considered as one of the most expensive borrowing forms. To be eligible for a payday loan, you simply have to show proof of employment (e.g. a paycheck).
Peer to peer lending
Peer to peer loans also referred to as P2P is a recent entry in the world of personal loans. In this type of lending, loans are financed by real people instead of financial institutions. Lenders are matched with people who are looking for a loan, through an online platform. These individual lenders are ready to take on more risk making the credit requirements for this financing to seem more flexible.
A debt consolidation lets you move your debts into one manageable low-interest loan payment to help you pay it off more effectively. A lender provides you with the money to pay off your existing debt with other lenders so that you only have one debt to repay rather than several that are difficult to keep track of. You can lower interest rates by consolidating your debt into one low, fixed-rate monthly payment.
Line of credit
An overdraft or line of credit allows you to overdraw your account to an agreed amount established by the lender (there is a limit to the amount you can access.) Borrowers only pay interest on the money used and not on the maximum amount one can borrow.
Credit card cash advance
It refers to a short-term loan that you can take against your credit card, up to a certain amount. The cash comes from your credit limit, which means you have to pay it back with sometimes very high-interest rates.
If you plan to make an expensive purchase such as a new car, house, furniture, etc., then you will need a secured loan. A secured loan will need you to commit the asset that you are buying or any other asset as security so that in case you fail to pay, the creditor can take your property and use the collateral to recuperate their money. These loans come with low-interest rates because they are considered low risk.