Now that you’ve decided to take out a loan, how do you decide which type is the best personal loan for you? The first question to ask yourself is, “What is this loan for?” Is it for a small business or personal use? Is it to pay for a big expense, like a wedding or a car, or to cover personal expenditures? Is it to help you buy a home? The loan’s purpose will impact which type of loan is best.
Another factor to consider is whether you’re looking for a secured or an unsecured loan. In a secured loan you offer something to the bank as collateral, which can be seized if you fail to pay back the loan. Such loans are generally easier to obtain and have lower interest rates, though they also mean risking seizure of your asset should you default on the loan. Unsecured loans, by contrast, do not require that you offer the bank anything, though these types of loans often come with higher interest rates for precisely that reason.
Below is a guide to help you figure out which type of loan is right for you:
If you are a small business owner looking for a loan to help you expand, you might want to check out small business loan options. A small business loan is a type of loan directly geared towards small business needs; the terms of each loan may vary, and will be guaranteed by the Small Business Administration.
Another option is to take out a secured loan using some of the business’s assets as collateral. If you choose to take out an unsecured loan, you may choose to do so using a peer lending site; often such platforms offer easier approval and more flexible repayment options than traditional banks.
The type of loan you need for personal expenses will largely vary depending on the expenses in question. Often, an unsecured loan will be your best option. These types of loans will have higher interest rates, but they will also have short repayment time-frames, meaning that you can pay them off quickly and get your financial affairs back on track.
Major Lifetime Expenses
Sometimes, you incur a major lifetime expense, such as a wedding or a car. Like personal expense loans, these too, are most suited to short-term, unsecured loans. In addition to the offerings at your local bank, you may want to check out the different loans provided by your local credit union, as well as by peer-to-peer lenders.
If you’re buying a car, there’s also the option of taking out an auto loan, in which the repayment time-frame is based on the expected life of the car. In this type of loan, you offer the car to the bank as collateral.
A mortgage is, generally, the best type of loan to take out when buying a house – after all, it was expressly designed for that purpose. Mortgages can help you pay off your loan in small monthly fees over an extended period of time and the exact conditions vary between different loan-providers, and factors.
What Does it All Mean?
There are many different types of loans out there. While this can make it a headache when deciding which type of loan to choose, it also means that there is a loan out there that’s suited to your needs. If you're ready to take the next step and apply for a personal loan, be sure you are prepared.