Know Your Loan Options
A loan can help you out of a financial tight spot, but it is crucial to choose the right loan for your situation. Choosing the wrong loan could cost you thousands of dollars in the long run. Some lenders even make it their business to lock unsuspecting consumers into loans they cannot afford. Learn about your different loan options here.
When an emergency or financial crisis occurs, sometimes the best option is to apply for a loan. But what type of loan? Today, people have various options with the different loan types that are available. One type of loan and its particulars might be better suited to your situation than another. Here, we will explain the differences between some popular loan options available today.
Personal Loans
Many different lenders offer personal loans. That includes banks, credit unions, and, more recently, online lenders. Borrowers should expect to demonstrate proof of their income, bank account, and identification. The lender will also require a credit check along with a completed formal application.
Personal loan amounts generally range between $5,000 and $10,000. Interest rates can vary, usually between 6 to 36%. The payback terms can also be anywhere between two to five years. Traditional loans exist in every state; however, not all applications meet with success. A person’s income and credit are factors that guide lending decisions.
If you choose to apply for a personal loan, you may not need to provide any collateral. Usually, a person’s good credit is enough to secure a personal loan, but this may also vary per the lender’s decision and the amount of the loan in question. Also, some lenders will assess fees for personal loans while others may not. Be sure to vet a selection of loan lenders before you make your decision. Ask about their interest rates, loan amounts, and other information pertinent to your loan inquiry.
Payday Loans
Payday loans have become popular options for people facing emergencies or budget shortfalls between paydays. Unfortunately, the interest rates associated with payday loans are high–as high as 400%. Usually, a borrower can expect to pay up to $30 in interest for every $100 borrowed.
When applying for a payday loan, borrowers will have to provide proof of income, their bank account, and their photo identification. Some states cap interest and application amounts at $500. In most cases, the borrower has two weeks to repay the loan amount along with the assessed interest. Loans may sometimes be ‘rolled over,’ but borrowers should expect additional fees for this service.
Not all states allow payday loans. These loans do not usually impact a person’s credit, but failing to repay them can result in debt collection. Only apply for a payday loan if you can repay the debt on time. Failure to do so may lead a company to garnish your earnings. That is a financial situation most find very uncomfortable.
Title Loans
A title loan requires an application, car title, identification, and, usually, proof of insurance. The average interest rate for a title loan is 25%. Borrowers can request a loan amount of between 25 and 50% of their car’s assessed value. Often, the KBB is used to determine vehicle equity value. The more the worth of a vehicle, the higher the awarded loan amount. With the option of online title loans the applicant can receive the loan amount in minutes of applying.
In most cases, borrowers have a month to repay the loan and can roll the loan over, subject to fees, of course. If the borrower defaults on payments and does not repay the loan, the lender can take possession of the borrower’s vehicle. That is a worst and last-case scenario that does not benefit the title loan company or the borrower. Most lenders will work tirelessly with you to help you repay your loan.
If none of these loan types is ideal for your situation, there are other alternatives. Some people may prefer to take a cash advance using their credit card. Although interest rates for credit card cash advances can be high, they’re not nearly as high as a payday loan, and they don’t require repayment within two weeks.
