Last Updated on July 10, 2020
Life has a way of surprising us when we least expect it. That’s why sometimes we need to take out a loan to deal with the issue at hand. It could be a medical expense, an accident, or a different event that we couldn’t possibly predict. If your savings aren’t enough, you might be in need of additional help. In a second, you’ll learn about the types of loans. Let’s go!
Secured Personal Loans
Those types of loans require collateral, like your car or a house. It means that if you fail to repay the loan, you’ll risk losing the collateral. Okay, so why are people willing to take that risk?
That’s because personal loans that are secured often have lower interest rates. If the loan is secured by collateral, the bank feels that its customers are more likely to repay the loan, which means that it doesn’t have to increase the interest rates to counterbalance all the customers that haven’t paid off their loans. If you are relatively sure that you’ll have no issues repaying your loan whatsoever, secured personal loans are an excellent idea.
Bad Credit Loans
If your credit score is low, and you won’t be able to improve it anytime soon, you could try your luck with a private lender. If you need money fast, and you have a bad credit score, it might be your best option. The interest rates will be noticeably higher, though, in certain situations, it could be your only chance to deal with the financial emergency.
It is expected that some of the clients of the private lender will fail to repay the loan, which is what causes such high-interest rates. If you want to learn more about bad credit loans, click here. Just remember that you shouldn’t take out a bad credit score loan unless you are absolutely sure that you’ll be able to pay it back later.
Unsecured Personal Loans
If you don’t want to risk losing your car or a house, you could take out an unsecured personal loan instead. It might be a good idea if you have debt on your credit card, as it is usually the case that the rates of unsecured personal loans are lower. Still, the rates of such loans are higher than of the loans that are secured by the collateral.
If you want to avoid having to pay off high-interest loans, your credit score should be as good as possible. The better your credit score is, the more likely it is that the banks will grant you loans on better terms. If your credit score is low, the lenders won’t think of you as a trustworthy customer.
Even if they lend you money, your rates will be higher.
Okay, so what are the factors that affect your credit score?
- Bill payment history
- Level of debt
- Credit utilization
- Types of a credit
Although getting an excellent credit score could require a lot of effort, improving it slightly wouldn’t take a long time. To improve your credit score, you should:
- Stay within your credit card limits. It will show your lenders that you have no problem controlling your levels of debt.
- Pay off your loans on time. If you have a history of the loans that you’ve managed to pay off without any issues, it is a sign that you are a reliable person. If your situation doesn’t require urgent action, you could even take out loans and pay them off in time just to improve your credit score. Taking out a loan would make it worse at first, but if you manage to pay it off with no issues, it will have a positive impact on your credit score.
- Check your credit report. It is possible that there are some mistakes in your credit report, and by correcting it, you would improve your credit score with almost no effort.
If you have any jewelry, devices, or basically anything valuable, you could go to the pawnshop instead. You’ll be granted a sum of money, and your possessions will be treated as collateral. It means that if you manage to pay back the money later, your things will be returned to you.
On the other hand, if you fail to repay the loan, you will have to accept that you’ll lose the collateral.
Although you might not think of it as a type of loan, a balance on your credit card works like a loan. Sure, it might be far easier to pay with your card than to apply for a loan, but it doesn’t mean that you could ignore the interest rates.
If you don’t keep track of how much money you owe to credit card companies, it could quickly add up to surprisingly high sums.