How To Know Which Type of Loan to Take Out

This contributed post is for informational purposes only. Please consult a business, financial and legal professional before making any decisions. We may earn money or products from the affiliate links in this post.

knowing which type of loan to take out

When it comes to taking out credit, most of us tend to have little background knowledge about what we’re stepping into. In fact, the majority of people will simply note that they need a little extra cash to tide themselves over and will take out the first credit agreement that is offered to them. This is problematic.

While you might be lucky and land a decent agreement straight off the bat, chances are that you’ll actually end up tied into a bog standard deal when there are so many superior options and alternatives out there. In order to get the best loan for your individual needs, it’s important that you are aware of all of the different types of loan that are available to you!

So, here are a few different types of loans that are on the market, along with everything you need to know about them and when they will serve your needs best.

Personal Loans

Personal loans, such as those offered by Personalloan.co, are one of the most commonly taken out forms of loan. People generally reach for them when they require a little cash to tide them over (perhaps while they are between jobs or running short of cash before payday). They are also frequently used to fund expensive projects, such as home improvements, or ventures, such as holidays, weddings, and honeymoons.

The personal loan is considered a form of “unsecured” debt, as they require no collateral: you don’t have to offer your home, car, or any other personal belonging up as a security backup should you miss repayments. Lenders will generally use your credit score to determine whether to give you a loan or not. Interest rates will vary according to the lender, however (as with any form of credit), you should scour the market to find the lowest rate possible. Once you have taken the loan out, you will generally pay back fixed sums in installments.

Credit Cards

Credit cards are an open-ended loan. This means that you can borrow over and over again. While a personal loan offers you a fixed sum that you have to pay back, credit cards alternatively offer you a credit limit. While this sum will generally stay the same, you can spend it time and time again. If you reach your limit, but then clear a certain portion of the balance, this portion becomes immediately available to spend again. This is good for smaller purchases. The convenience of using a credit card lies in consumer protection.

When making a purchase on a credit card, the credit card issuer assumes joint responsibility with the merchant to ensure that you are delivered the product as described. This becomes increasingly useful, as we are spending increasingly large amounts of money online where we simply have to take the merchant’s word for the quality of what we are buying.

While these are just two types of credit that are available to you, they are two of the most popular. So it’s a good idea to have a functioning knowledge of what using each entails!

Financial Bin Community

Recommended
If you're just about to embark on the journey to…
1 Shares
Pin
Share1
Tweet