What Are Different Types of Loans

So many options to leave you spoil on choice! Yes, I am talking about loan. You need it for either personal or professional purposes.

This article will explain different types of loans along with the finance jargon so that you can make the best choice.

Secured Loans:

Secured loans are secured against the collaterals put up by the prospective borrowers.  Anything like your house or car or other assets can serve as collaterals. However, the asset value must be more than your loan. Actually the lenders ask for these collaterals to seek some protection against the risk they are taking. If the borrowers fail to pay off the loan, the lenders are entitled to foreclose the assets and make for the outstanding payment. Generally, the secured loans are given for a long length of time and the amount is also of big size.

Unsecured Loans:

Unlike the secured loans, unsecured varieties do not require any collateral. It means that the borrowers of unsecured loans are considered a low risk investment by the lenders. However, the borrowers will not definitely be let off if they fall behind on scheduled payment. In fact, they will be issued warning by the lenders in case of repeated failure to meet payment. If warning fails to work, the court can almost force them to clear dues. In the worst cases, the defaulters may meet the threat of bankruptcy. The unsecured loans are very small in size and given for a shorter time span.

Payday Loans:

These exemplify short term loans and go up to only £500. The borrowers are obliged to pay back the loan within one month. However, the repayment period may stretch longer if the lenders allow it. Actually, these loans exist from one payday to the next payday. The payday loan providers do not run a checking on the borrowers’ credit history. One just need to be at least 18 years’ old and must have a bank account. You must also have three months’ working experience. If you can prove your eligibility, loan is approved within 1-3 working days.

Debt Consolidation Loans:

This loan is much sought after by those who are quite burdened with overwhelming debt pressure. This is a good way to pay off the outstanding dues. This option is applicable only if you have multiple loans unpaid. When you consolidate loans, these are merged together into a single loan. It means from now onwards, you have one debt that is to be repaid only to one lender. The best advantage of loan consolidation is it lowers monthly debt payment. Either the interest rate is lowered or repayment period is spread over a longer time so as to shorten the size of scheduled installment.