8 Types of Loans: Which Is For You?

Despite working hard to reach your financial goals, there are some needs that will require instant cash that you won’t always have. If there are no other options left, loaning can be your next move. But before you jump on this opportunity, it pays to know which loan covers your financial needs, so you can access the funds as soon as possible and get the most convenient payment terms.

Banks are the most common sources of loans, but your options are not limited to them. There are credit unions, in-house lending institutions, and with the help of technology, online lenders like Cashalo. It may be easy to find the financial institution that can grant you a loan but qualifying and paying for it is another story. To make sure that you’re on the right track, here are a few important things to keep in mind and the types of loans that can address your needs:

 

What to Consider Before Applying for a Loan

Purpose of Loan

Before anything else, you must ask yourself why you need additional funds. Do you need extra cash to pay for your children’s school fees, fund your mother’s 60th birthday party, or furnish your home? Maybe you want to buy a new car or start a business? Perhaps you need the extra cash to pay your overdue bills or consolidate your loans?

There are different types of loans for various purposes, and most financial institutions will ask you what the money’s going to be for. Knowing the purpose behind your loan will help you determine the best loan type for you and the amount you may need.

Loan Amount

Financial institutions and lenders want to make sure that you’re capable of repaying your loan, so they won’t let you borrow more than you can repay. As such, your loan amount will entirely depend on the type of loan you need, your financial capability to pay it off over time, and your credit history. Make sure you know exactly how much you need and if your finances are enough to settle your loan comfortably (plus interest) over the designated time frame.

Interest Rates

It’s always ideal to apply for a loan that has the lowest interest rates possible, but this is not always the case for each type of loan. There are a few factors that influence a loan’s interest rate, and these include the amount borrowed, the principal sum, its compounding frequency, and the time period it’s set to be paid off.

Term

The payment terms are the conditions you agree to in fulfilling your repayment. This includes the payment method, interest rate, number of months or years to pay, and other additional fees. Make sure you are capable and comfortable with the term you sign up for with your lender. This boosts the likelihood of completely paying off your loan and keeping your credit history spotless.

Penalty Charges

There will be cases where you won’t be able to pay your dues on time for whatever reason. Unfortunately, you will incur a penalty charged to your loan account if this happens. It’s best to find out the particulars of the penalty, so you can avoid any of them in the future since this will affect the affordability of the loan right from the get-go.

Credit History

Getting a loan approved not only relies on your current financial capability to repay but also your credit history. This includes your credit score, which lenders check during its credit investigation to determine if you’re inclined to settle your bills or any other payables. If you have pending dues, it would be best to settle them before applying for loans.

Payoff Strategy

It’s important to have a payoff strategy from the beginning to make sure you’ll be able to settle your debt while taking advantage of a low-interest rate without incurring any penalties. This means your strategy has left you financially comfortable in paying off the loan in time.

 

Types of Loans

Personal Loan

A personal loan, whether from banks or from online lending companies, is used for a wide variety of purposes, whether that’s for debt consolidation, school fees, utility bills, medical crises, or even shopping. It’s an unsecured loan, which means it’s a loan not protected by a guarantor or collateralized by a lien on specific assets in case you fail to meet the terms of payment for any reason. This is approved based purely on your credit score, with various interest rates and payment terms.

Home Loan

Purchasing a house is a huge financial commitment, so getting a home or mortgage loan can help you take that first step in making that commitment. This involves going through a relatively strict qualification process at your preferred financial institution, with the lender having rights to the property as collateral while the loan is being paid for.

Car Loan

Not everybody can afford a one-time payment of a brand-new car. To make it easier to own one, an auto or car loan is offered by financial institutions to make owning a car more affordable for potential buyers. Also called car financing, borrowers go through a credit investigation and, when approved, allow car buyers to provide the down payment and pay in installments that lasts for three to five years with interest.

Travel Loan

People consumed by wanderlust but don’t have the financial means to satisfy their urge can take advantage of travel loans to cover their vacation expenses. A travel loan is a type of personal loan that helps borrowers finance their trips, particularly the expenses involved such as airfare, accommodations, tours, transfers, and other travel costs.

Gadget Loan

A gadget loan is another type of personal loan that involves the purchase of electronic gadgets such as cameras, laptops, smartphones, and gaming consoles. Lenders grant loans to borrowers and have them pay in installments with interest.

Appliance Loan

You can also purchase appliances through a personal loan if the need arises. Called an appliance loan, it’s similar to a gadget loan, with a lender offering a cash loan that you can pay in installments plus interest, for use in the purchase of any type of home appliance, and often times, furniture.

Business Loan

Intended to be used for business purposes, a business loan is generally applied for to fund startups, operational costs, purchase supplies, or expand the business among other things. As with all loans, it involves the creation of debt, which the borrower pays with added interest.

Credit Cards

This is one of the common ways people can loan from a banking institution. After going through a credit investigation that involves a background check largely focused on your occupation and source of income, a credit card is issued and used as payment for cash with a set limit. Interest rates are high for these short-term loans and are usually paid for the next month.

 

Loan Tips to Get You Started

  • Do your homework and shop around for the best deals. At the same time, you can also seek financial advice, particularly for loans with a larger amount. This helps you find loans with low interest rates and payment terms that could possibly be easier to make.
  • Part of doing your homework is knowing the terms involved and what they mean to your loan, particularly those that involve risks. For example, you can lose your home if you don’t keep up with the repayments of your secured loan.
  • It may sound ironic, but it takes smart financial planning when taking out a loan. Your top priority is to make sure that with your current finances, you will be able to afford the loan payments.
  • Buying anything on impulse is usually a bad idea, more so if they are of the expensive kind such as a home appliance or a car. Think of your payment options beforehand and decide if you can afford to make the payments.
  • Perhaps the number one rule when applying for a loan is knowing that you can afford to pay all of them collectively. Remember, never borrow more than you can afford to repay or risk falling into a debt trap that you can’t escape from.

 

Conclusion

Now that you’re armed with the right information, you can address your needs with the appropriate loan and how to go about it the right way. When it comes to big loans, preparation is key. Make sure you’re ready with your requirements, documents, and payoff strategy. But for immediate purchases, personal loans are always the way to go. And with online lending companies like Cashalo revolutionizing the way people apply for a loan, you don’t have to worry about being caught off-guard. With its fast approval, you can address any personal emergencies or expenses that come your way.