There are countless reasons you may need some extra cash, especially this time of year. You could need it to cover an emergency (like a roof repair or car accident), make some purchase (Christmas presents), or to consolidate your debts. You may require a loan where a bank lends you an amount of money for interest and a fixed time frame. Because there are various reasons to get a loan, there are different loans types that are available. Each type has its own pros and cons, so it is smart to review them to know what might work best for you. Many financial institutions, private lenders, and companies that provide online loans can outline what is available for your specific situation.
Secured and Unsecured Loans
Secured Loans are loans backed by collateral. The collateral is typically a home or car. Because something is being held as collateral, the rates are typically lower. The risk you take with a secured loan is that the lender could seize the collateral if you fail to pay. The opposite of a secured loan is an unsecured loan. With an unsecured loan, the loan is not backed by collateral. These tend to have higher rates and are also typically only available to those with good credit scores.
Fixed and Variable Rate Loans
As previously mentioned, loans typically charge an interest rate for their loans. With a fixed rate loan your interest rate is set in the contract and does not vary. Your interest rate and payment will remain steady over time. This type of loan makes repayment easy to budget, but with the lender taking on more of the risk, the rates are typically higher. On the contrary, there are variable rate loans. They are exactly what they sound like, the interest rates may change over the life of the loan. The downfall to these is that the rates could go up which may cost more than you would want.
Line of Credit
Another type of loan is a Line of Credit which offers access to funds when you actually need them. It is almost like credit cards where you can withdraw cash as needed and you only pay interest on the amount you spend but not on the amount you borrow. There is a limit to the amount you can access, depending on how much you can get approved for.
Debt Consolidation
If you are in a lot a debt, sometimes it is easier to have your debt in one place and make one payment. A debt consolidation loan can do this for you by combining multiple debts from credit cards, high-interest loans, and other bills into one monthly payment. Debt consolidation solutions may lower your interest rate, which can help you save money on interest, lower your monthly payments, and pay down debt faster. It is smart to speak with a certified financial planner or an online resource who can help you weigh the various options and help come up with a plan that makes sense for you.
