You need to enlighten yourself on the different types of loans that you can avail in your life
These days it is normal and common to borrow money from banks, moneylenders and other financial institutions to help pay for living expenses. Loans can be used to make planned purchases like a house, car, vacation, or expensive appliance. Or they can be a saving grace when you find yourself in an emergency with no savings you can use to cover expenses.
Knowing what loans are available before you need them is always helpful.
Why Credit Score Matters
The ability to get a loan with good terms largely depends on your credit score. A good credit score is greater than 660 and is determined by the following:
Your payment history is probably the most critical factor in determining your credit score, accounting for 35%. Payment history shows that you pay your debt and that you pay on time.
Another important factor used to determine your credit score is the amount you owe and this accounts for 30%.
- Amount of credit available compared to what you use
Lenders look at how much credit you are using and how much of your credit is still available.
A credit mix is ââfavorable because it shows lenders how you handle different types of credit. A good credit mix would include a some types of loan such as a mortgage, car loan, credit card, student loan and personal loan, as long as you pay them back regularly.
Finally, your credit score is affected by any new loan you have applied for and obtained.
Types of loan
Depending on what you need financing for, you will determine the type of loan you apply for. The most common types of loan are:
Even if they save for years, most people won’t have enough cash to buy a house, so they use a home loan to finance that purchase. Mortgages are secure, long-term loans that use the home as collateral. The house can be repossessed if you cannot pay your mortgage payments.
As a general rule, monthly mortgage payments are fixed and repaid over 20 to 30 years. Many people choose to put a down payment on the house to reduce the amount they pay in interest.
Like a house, many people cannot afford to buy a car without it being financed. Auto loans are secured, with the vehicle used as collateral, and can be used to purchase new or used cars.
Auto loan interest rates vary from state to state, and the term you must pay can range from two to seven years.
Since vehicles are considered liabilities, financial experts advise paying as much as you can afford as a down payment to lower your monthly payment rates.
Personal loans can be used for anything. You can use it to pay your monthly bills or for a major purchase that’s not in your budget. There are many types of personal loans available, so shop around before you commit to find the one that’s right for you.
Getting a personal loan is easy, especially if you have good credit. You can apply in person at a bank, at a lender, or online. Interest rates and payment terms vary, but with a good credit score, you can get a loan with a reasonably low interest rate and a few years to pay it off.
A online personal loan application process can be the most convenient if you want to compare rates. To apply, enter your details once into an online lending network. They will send your request to a few lenders, who will then send you loan offers for you to compare.
For people with bad credit, the personal loan options available to you are limited. The easiest way to get a loan is to opt for a loan without a credit check. Although these loans can get you cash quickly, which is great when you’re in a bind, the interest rates are usually high.
Also, the repayment terms are tight, leaving you with little time to repay the loan. This could lead to a cycle of borrowing and accumulating debt that can be difficult to repay. So consider all of your options before going down this route.
An easy way to get cash while avoiding a credit check is to use your existing line of credit. If you have a credit card, you can withdraw money from an ATM provided you have a PIN code.
You can set up the PIN online or with your bank or credit card company. The amount you are allowed to withdraw is usually less than your swipe amount and has its own balance.