Being able to access funds quickly is important for many Americans and their families. Lives can be turned upside down in a second when faced with unexpected medical bills or when a car breaks down because of an irreparable (or unreasonably priced) part on the vehicle.
Loans can help with those costs that come at the worst possible times. An estimated 34 percent of all Americans have taken out a private loan of some kind to pay off unexpected expenses.
Aside from unexpected costs, people might take out a loan to have cash for a business venture they’re going to start up. Whatever different kinds of loans you’re seeking out, whether it’s to help pay off student loans or a trip to the emergency room, we’ll help guide you on the types of loans out there that can fit your need!
Five Different Kinds of Loans to Consider
Car Title Loans
Financing against your car title is considered a short-term loan. It’s usually taken out by a borrower for quick cash, and it’s generally a small amount of money that can be paid off fast.
You must be listed as the vehicle’s owner to get a car title loan. A vehicle the owner can borrow against includes a car, truck, and motorcycle. The amount of money you receive is determined by the appraisal of the vehicle.
The maximum amount of a loan can also vary by state law. Once your loan is paid off in full and you no longer owe money, your car title will be returned to you. Car title loans are categorized as a collateral loan. Meaning, if you don’t pay off the loan, you can lose the title of the vehicle.
Items to bring to your lender:
- A completed loan application
- Car title
- Photo ID
Unlike car title loans, this loan isn’t backed by collateral. When you take out a personal loan, you’re agreeing to pay back the money borrowed without fear of something of value getting repossessed. It’s basically a promise of payment.
The amount you receive from a personal loan varies by where you live. You can take out a personal loan of $1,000 and go up to tens-of-thousands of dollars. Your FICO credit score will be reviewed during the process, but your lender may do a soft inquiry to get you pre-approved.
People who take out personal loans use them to pay off many types of expenses: medical visits and equipment, education, emergencies, auto repairs, and vacations. Loan rates will depend on the person’s credit history – you can expect to see anywhere between 10-32 percent advertised!
A payday loan is another type of short-term loan that many borrowers take out. They’re generally used to pay for an unforeseen medical emergency, rent or mortgage payment, or an unexpected bill. Applying for a payday loan is easy.
You’ll simply need to provide your lender with a social security number (SSN) or taxpayer identification number (TIN), bank account information, and proof of a consistent income. Payday loans typically have a time frame to be paid off, so keep this in mind when you’re applying for one.
When you’re searching for a new car, you’ll want to shop around for your auto loan. Why? You want to get the best rate so you don’t spend an arm-and-a-leg on interest.
Auto loans can be financed through many organizations, including a bank, the car dealership, a credit union, or even a home equity loan. Banks and credit unions generally have the best interest rates to finance your new car.
A strong credit rating will help you land a better rate. Car dealerships offer financing options on their vehicles, and you may be able to include some additional perks in your purchase if you finance through the dealership.
Simple interest loans are the most common type of loan when buying a car. Your vehicle and title are used as collateral for the loan. If you miss monthly payments, your car can be repossessed by the lender you went with.
What you need to have to be prepared:
- Car budget
- Credit standing
- Photo ID
- Financing questions for the lender
Small Business Loans
A small business loan makes building a business (or creating an empire!) possible. The lender will absolutely be looking at your FICO score since it will evaluate your ability to pay back the loan.
This loan is a long-term loan, so it doesn’t need to be paid off right away. In fact, it may take years to pay back. However, your lender will provide you with the loan details and a payment plan.
Your FICO score breakdown:
- Payment history
- Debt owed (credit cards and other loans)
- How long you’ve had credit
- Open credit lines
- Credit inquiries
Small business loan amounts can vary from person to person. You’ll have to fill out an application and possibly write a short description of how you intend to use the loan.
Student loans are intended to be repaid over time. Interest generally starts on the day of or the day after you officially graduate, but in some cases, there is a grace period. This type of loan is used to pay for a student’s school tuition.
Whatever money is left over can go back to paying down the loan, or to other expenses such as textbooks, a laptop, or housing costs. Be sure you talk with your lender about your repayment term, interest rate, and so forth.
Weeding Through All of the Types of Loans
There are many different kinds of loans out there to choose from. Picking the right loan for you is relative to each person. Think about your situation and with the proper research, you’ll be in the know and can reach out knowledgeably to a loan expert.
For more facts on loans and other financial opportunities, please visit our economics blog!