How to Choose the Right Type of Loan

by | Dec 4, 2020 | Borrowing Tips | 0 comments

Most of us have had to borrow money at some point in our lives, to help us pay for the things that matter. From parents lending us cash to make ends meet, to student loans for school, and everything in between, loans are a common tool that people use to manage their finances. However, there are many different types of loans out there, so it’s always a good idea to know what you’re getting into before applying.

Outside of the big milestone loans, like student loans and mortgages, there are many personal loan options that may be able to help you tackle unforeseen expenses. Life happens, and sometimes you need money before your next paycheck, or you need a larger sum of money than you’ll have access to on your own. A personal loan from a local lender can be a great option for making ends meet.

With any type of loan, there are a few things to keep in mind, which can help you choose which one is best for your situation:

1. Loan type

For the majority of people needing a little extra financial help, payday loans and installment loans are the easiest options. Payday loans are short-term loans for small amounts, designed to help you get through to your next paycheck. These often don’t require credit checks, and often charge a simple flat fee on the amount borrowed. Installment loans are longer-term loans for larger amounts of money, designed to be paid off in regular installments. These loans usually come with interest, and are dependent on your credit worthiness. Under installment loans, you may see options for secured or unsecured loans, with the former requiring collateral, and the latter not.

2. Loan interest rates

No matter which kind of loan you choose, you should know the terms and conditions. Know whether you’ll be paying an interest rate/APR, if that interest rate is fixed or variable, or if you’ll be charged a flat fee instead. Know how much your payments will be, and any potential consequences that may happen if you miss payments. Your lender should be able to go over all of these details with you before you sign any loan documents.

3. Loan length or term

Whether you need a large lump of cash to pay off a one-time balance, like a medical bill, or you need a small helping hand to cover utilities this month, you should be aware of how long your loan term is. For example, payday loans have very short terms, typically paid back within a few weeks, while many installment loans have longer terms, paid off in months or years. Knowing how long you have to pay it back, and what kind of payments are expected, is key to choosing the best loan for you.

With many great loan options out there, you’ll surely be able to find one that suits your needs and life circumstances. Chat with a local lender today to learn more about what they offer and how they can help you take control of your finances.