Loan types you should know before getting a loan.

There are many different types of loan available these days which for someone who isn’t up to date with the jargon it could be a little confusing. Below is a list and brief summary of the most commonly used loan types today.

Different Types of Loan

1.Payday Loans

Payday loans have dramatically increased in popularity over the last few years with the number of people in the United States using them increasing everyday. They are essentially just short term loans of up to 30 days ranging in size from between $100 to around $1500. Unlike almost every other type of loan which is set up on a repayment schedule and repaid over a number of months of years a payday loan is repaid in one lump sum on the borrowers next payday.
Payday Loans are intended for short term needs only, not for long term!

2.Doorstep Loans

Quite similar to payday loans in that they are usually for relatively small amounts of under $1500, although doorstep loans are generally paid back over a period of up to a year. This type of loan is usually repaid on a weekly basis with a representative from the lender coming to your house to collect the weekly repayment.

3.Guarantor Loan

Guarantor loans can vary in size from small to very large but the thing which distinguishes this kind of loan from any other is that there needs to be a 3rd party put their name on the agreement to guarantee they will repay the loan if the borrower is unable to. This kind of loan is increasingly popular with people who are unable to get a loan themselves and also with people who have a guarantor to help them get a better rate. Depending on the size of the loan the guarantor may need to be a homeowner but at the very least will need to have a good credit rating.

4.Unsecured / Personal Loans

This is probably the most common type of loan that people usually get from their bank and is usually repaid over a period of between 1 and 10 years. Unsecured loans are used by many people for common large purchases such as cars, home improvements, holidays and debt consolidation. Interest rates can vary widely depending on your credit history and loan amounts are typically in between $1,500 – $35,000.

5.Secured / Homeowner Loans

A homeowner loan is secured against a property or other asset such as a business to ensure the lender can reclaim their money even if the borrower is unable to keep up with repayments. This type of loan is typically larger than an unsecured loan and can be anything up to the value of the asset which it is secured against. Secured loans are commonly used for similar purchases to personal loans and in some situations can be preferable because they generally have lower interest rates.

Before taking any kind of loan (especially secured loans) it is best to seek independent financial advice!

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