What Type of Loan (is best for me)?
Lending has become a very profitable business, as evidenced by the proliferation of lending institutions as well as the emergence of different types of loans being offered, all to entice consumers and businesses to borrow money. As a result, the borrower is usually in a dilemma when trying to choose the most suitable loan.
Whatever the type or form, loans are fundamentally based on two things - the principal, which is the amount borrowed and the interest, which is the amount paid for the borrowed money and is calculated using the principal as basis. Lenders package loans for different uses, with varied payment periods and terms, interest rates, loanable amounts. Two of the most popular loans are the mortgage and the personal loan. As its name suggests, the home loan is used to purchase a home and is commonly referred to as mortgage. A personal loan, on the other hand, is taken out when cash is required to purchase anything that the borrower needs.
Personal loans can be secured or unsecured. Secured loans involve putting up collateral against the amount being borrowed. In case of payment default, the borrower can lose the collateral. Unlike the first type, unsecured loans do not need collateral against the borrowed amount but higher interest rates are charged. This is due to the additional risk being absorbed by the lender when giving out money without security. It is normal for lending institutions to run credit checks before approving a loan application, just as normal as the person will compare secured loans before signing anything. Past payment defaults, accumulated mortgage and a bad credit rating might work against the borrower in this case, resulting in disapproval.
Persons with poor credit can still avail of a loan since there are lending institutions who do not conduct credit checks for personal loan applicants. Most of these can be found online. However, the borrower should do extensive research and read the conditions carefully to make sure that he is availing of a good deal and not get caught in a scam.
The loan term is also one aspect that the borrower must consider. Usually, loans with short terms have higher interest rates because of the short repayment period. However, people encountering financial emergencies and who do not need such a large amount opt to avail of this type of loan.
The borrower can certainly benefit from the loans that are made available as long as he has carefully considered his financial needs and capabilities before borrowing. In this way, he can make sure that he will be able to pay back what he owes.