The ongoing Covid-19 pandemic has led to many people having their income reduced. Furthermore, a large number of individuals have even lost their jobs with no prospect for the future. Regardless of how much money an individual has set aside, there may come a time when you will need to borrow money from a bank. The good part is that banks and other private lenders are currently offering dozens of deals to choose from. This having been said, variety is usually good, but in this situation, it can be confusing. While the lenders do market their products through commercials and online ads, most do not explain what kind of deals they are offering. To make things a bit clearer, we will look at the main types of loans that an individual can access:
- Personal Loans
Personal loans are some of the most popular types of debt in the world. They can be secured or unsecured and enable individuals to borrow relatively large amounts of money. There are no restrictions on what the borrower can do with the money, and almost all lenders offer them. As with any type of loan, the interest rate is usually based on the borrower’s credit rating.
- Small Business Loans
Small business loans are secured loans that are given only to small businesses that provide the lender with a well-prepared business plan. Once the plan has been reviewed, the terms and conditions are established and offered to the borrower. When it comes to these loans, it is important to keep in mind that lenders may require the lender to offer a personal guarantee as collateral for the loan. This usually happens when the company does not yet have enough properties to offer as collateral for the loan.
- Home Equity Loans
These types of loans are always secured and require a special type of collateral, namely the borrower’s equity in his home. The value to the loan is established depending on the value of the collateral that the borrower offers and the term is similar to that of personal loans. The main advantage of Home Equity Loans over Personal Loans is that the former can be used to borrow considerably larger amounts of money. They are great for large expenses such as purchasing a new car or paying for an expensive medical procedure.
- Lines of Credit
Lines of credit are different from loans, but similar to credit cards. When a borrower applies for a line of credit, he will be given access to a bank account that will contain a set amount of money. He has access to the whole amount, however, he only pays interest for the amount that he uses. Lines of credit are usually great for home renovation projects or other situations where the final cost of a product or service cannot be established.
- Home Equity Lines of Credit, or HELOCs
HELOCs are lines of credit that use the borrower’s home equity as collateral. They have low-interest rates, long terms, and very high values.
- Payday Loans
Payday loans come in a wide variety of shapes and sizes. Almost every lender offers this type of loan but markets it under a different name. These are micro-loans that allow individuals to borrow relatively small amounts of money for a period of up to 30 days. Getting a payday loan often takes under 60 minutes (some lenders offer them through cashpoints), however, they have high-interest rates.
These are the main types of bank-related loans that individuals have access to. While many online-based services enable people to borrow money, they operate in a grey area and the transactions are not reported to credit registers. This means that getting a loan from them will not help build up your credit rating. Young adults and individuals who do not yet have a good credit financial history are advised to borrow money from banks rather than from other sources. This will enable them to build up their credit score and have a good relationship with lenders.