What’s the Difference? 5 Loan Types Broken Down
Loans (Photo credit: zingbot)
Do you need cash and aren’t sure which loan type is right for you? Have you seen an ad for a payday loan and are wondering what that is? Let’s take a look at a few different types of loans to see what they are and whether they may be useful to you at some point. There are many different types of loans. Each loan has specific repayment terms, interest rate and eligibility requirements.
Credit Card
Credit cards are also unsecured loans. However, they generally require a minimum credit score for an applicant to be approved for a line of credit. Payments are made once a month and the balance is considered to be a revolving balance. In other words, the balance on the credit card is available to the borrower again once a payment has been made. For those who have poor credit, a secured credit card may be a good way to improve a credit score and help those people become eligible for unsecured lines of credit in the future. A credit card can be a great way of building credit and you can avoid interest charges if you pay off the balance each month.
Personal Loan
A personal loan is an unsecured loan that you can get with few or no questions asked. They typically come with a higher interest rate because they are unsecured. A common example of a personal loan is a payday loan. San Diego cash advance loans are easy to get and depend on your current income. Personal loans can also include larger bank loans for anything from paying for medical care to school. Taking a personal loan is not always recommended and generally is for people who find themselves in a desperate situation needing money for an emergency.
Home Equity Loan
Those who wish to have access to the equity in their home to pay bills or consolidate debt will apply for a home equity loan. These loans are secured by the home itself and come with low interest rates. Although there may be a minimum credit requirement to be approved for the loan, it can be a good option for those who have equity and need a way to lower the interest rate on their credit card debt or other high interest debt.
Home Equity Line of Credit
The HELOC is different from a home equity loan because it too is a loan with a revolving balance. This is typically used by those looking to finance a business or another large purchase without having to sell their home or take out another type of loan. Because there is a revolving line of credit, this can be compared to a the way a credit card works.
Factoring Loan
The factoring loan is a loan that sees a business sell its accounts receivable for upfront cash. Businesses that are looking to fulfill a large order or expand operations may want to liquidate those accounts to keep the business open for the long-term. Of course, this generally isn’t the first choice, but is sometimes necessarily to avoid having to close doors.
There are several different types of loans that you can choose from depending on your circumstances. Each loan has it’s own set of criteria and some are used more often than others. It’s important to consider all the pros and cons before taking out a loan. Since you will have to pay it back, plus more, some loans are considered as last resorts. By taking the time to learn about your options, you can choose a loan that works for you without having to pay too much for the right to borrow that money.
Category: Debt
