How To Determine The Best Personal Loan For Your Financial Situation
When it comes to personal loans, you need to know why you are getting one in the first place. You never want to get a personal loan for “just because.” There should be a reason for it. Will you use the money for a business or personal reason? Will it be used to pay for expenses such as a vehicle, wedding, trip, medical costs, etc.? Will you be getting a loan to make home repairs or renovations?
The purpose behind the loan will dictate what kind of loan will be best for your situation.
Along with the reason for the loan, you need to consider if you need a secured or unsecured loan. What is the difference between these two loan types?
Secured loans mean you are giving the bank collateral that they can seize if you are unable to repay the loan. These loans are often easier to get and come with a lower interest rate. However, they are riskier if you cannot pay the loan, as you lose the asset you put up as collateral.
Unsecured loans mean you don’t give the bank any collateral, but they often have not-so-favorable loan terms.
So, before you go searching for a loan, what kind of loan do you need?
1. Home Loan
When you are trying to buy a home, you will need to take out a home loan, which becomes a mortgage. Mortgages are monthly payments toward the loan that can last anywhere from 15 to 30 years. However, the conditions of these loans will vary based on certain factors and loan providers.
2. Major Household Expense Loan
A major expense loan tends to include a car, wedding, home improvement, etc. These loans are usually unsecured and short-term (three to five years). While financial institutions offer these loans, you can always reach out to a credit union or peer-to-peer lender for approval.
Bear in mind that if your goal is to buy a car with this kind of loan, it’s best to seek out an auto loan. The repayment terms are centered on the car’s life expectancy, and the car is the collateral the bank can repossess if you fail to make timely payments.
3. Personal Loan
The kind of personal loan you need depends significantly on the kind of expense you have. For most people, an unsecured loan is best. The interest rates are going to be higher, but they come with a shorter repayment term. You can use this loan to get your financial issues under control quickly.
4. Small Business Loan
As an owner of a small business, you can use the loan to grow your company, invest in new technology, equipment, etc. A small business loan is explicitly geared to the needs a small business has. Loan terms will vary from one provider to another but have the back of the Small Business Administration.
You have two options - secured or unsecured. Again, secured means to put up some business assets to attain the loan. With an unsecured loan, you don’t have to go with a traditional lender. Instead, you can check out peer-to-peer lending sites for approval. These sites have easier approval terms and several highly affordable repayment options to choose from.
What To Keep In Mind…
There are all kinds of loans offered on the market, and choosing the right one may seem like a daunting task. It just doesn’t have to be. Knowing what kind of loan you need makes you feel assured that the loan you get will meet your needs and expectations. From there, just gather together the documents you would need to submit with a loan application.