The 5 Most Popular Loans
Finding the Loan that Makes Sense For You
Almost everyone needs to borrow money at some point. That can be part of a long-term plan, like buying a house or a car or setting up a business. It can also be a response to a short-term need, like a necessary car repair or medical emergency. Whatever your purpose, there’s a loan out there that’s designed to meet it, and finding the right one for your needs will make it easier to get approved and easier to pay back what you owe.
Any time you plan to borrow, it’s good to stop for a quick reality check before you commit. Borrowing money is sometimes necessary, and it doesn’t have to be a bad thing. It can be a dangerous thing, though. If you’re borrowing just to meet daily expenses, if you’re borrowing on a regular or frequent basis, if you’re borrowing to pay back other debt, or if you’re routinely paying very high-interest rates, it’s time to step back and reassess your overall financial strategy. Going too deep into debt is only going to make things worse in the long term. When you do borrow, you’ll want to look for lenders who are fully transparent about fees, interest rates, late payment penalties, or any other features that could send your payments on an upward spiral.
If you need to borrow, it’s important to find the right type of loan for your purposes and avoid the wrong ones. To do that, we need to understand what’s out there and how we can use each type. Let’s look at some common options.
Short Term
Short-term loans are a great option if you’re in need of fast cash. The term is usually about 4 to 6 weeks, though maturation periods may be as long as several years. Individuals with low credit scores are eligible, though your interest rate may range from high to very high. Be sure you know exactly what high interest means for your payment schedule, and that you have the capacity to pay back on time.
Requirements may vary from lender to lender. You have to be at least 18 years of age. You’ll need to have a reliable source of income from your job or another source, like disability or retirement income. Many short-term lenders require that you have an active checking account to facilitate payments.
Applying is relatively easy, and these loans can come in handy if you find that you need money right away and can pay that money back within a relatively short period. Payments due are sometimes higher than you might expect, due to the high-interest rate. Payments are typically deducted from your bank account automatically, and the amount of money you can borrow is usually between 500 to 1500 dollars, though this will vary with your income.
Multiple online lenders are offering short-term loans, which make application easy and straightforward. When applying online, you’ll typically need to fill out a short application and provide the lender relevant information, including your bank account number. You will also have to agree to a set payment plan. The application process is relatively straightforward, and more often than not, you’ll have an answer within a few minutes of applying.
Before you sign the contract, you need to pay close attention to the interest rate listed and calculate the amount of interest you will be paying and what each monthly payment will be. Be sure to look for any hidden fees or penalties. Once you’ve made sure the interest rate is fair, you’ll also want to take a good look at the payment schedule. Ensure that you will be able to make the payments comfortably. If necessary, request dates that line up with your payday. If you are not completely sure you can make the payments, it’s best to look at the possibility of borrowing a smaller amount.
Payday Loans
A payday loan is a type of short-term loan. A small amount of money is lent to the borrower at a very high-interest rate, with the promise that the borrower will pay on the following payday. They are often secured with a post-dated check or authorization for payment by direct bank transfer. Applying is very simple and usually only requires that you are over the age of 18, can provide proof of income (usually with a pay stub) and have proof of an active checking account. These loans are accessible to people with bad credit and in some cases are the only way a person with bad credit can borrow.
The entire amount loaned must be paid back the following payday. For this reason, it’s a good idea to plan before you decide on applying. Payday loans have some of the highest interest rates of all, and depending on the lender, you could end up paying a fee that is as much as 15 to 20 percent of even a small loan. In annual terms, that translates to so much more than a hundred percent!
This type of borrowing can be beneficial if you find yourself suddenly short on cash and in great need. Payday loans can be a lifesaver in that rare emergency, but relying on them is a quick way to be sucked into a debt trap. A study by the Consumer Finance Protection Bureau determined that almost half of payday borrowers are taking out over ten loans a year, meaning near-monthly use.[1] Many borrowers end up rolling over an unpaid balance into a new loan, sinking deeper into debt at an increasing interest rate. If you’re in danger of falling into that situation, you need to make a serious effort to review your spending habits and break the debt cycle.
Car Loans
Car loans are used to purchase a vehicle, with the car itself often used as collateral. Almost everyone who buys a car has to borrow. Cars are expensive, and very few of us can afford to lay out that kind of cash! As with any long-term debt, your credit score will have a significant impact on the interest rate and terms. Be sure to shop around and do your research!
There are two ways to finance a car purchase. Direct borrowing from a bank, finance company, or credit union is often the best because it lets you shop around for the best available terms. The other option is financing through the dealership. Dealers have an incentive to offer you a good financing package because they want to make a sale. You still have to review the terms carefully to assure that there are no hidden clauses that could make the deal more expensive.
You’ll usually have to make a physical appearance at a bank or other lender, and you’ll need proof of income, proof of an active bank account, as well as proof of your identity. You’ll need to complete forms providing additional information, and you’re likely to be asked about the total of the rest of your monthly bills to ensure that you can afford the payments.
As always, pay particular attention to the interest rate attached to your loan, as well as the amount listed on the last payment date. The final payment may be considerably higher than the monthly payments, which could lead to confusion and the repossession of the vehicle.
