Types of Loans
When it comes to borrowing money from a private lender, there are essentially three options available to you: personal loans, secured loans, and credit cards.
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The type that will be best for you largely depends on factors such as how much money you wish to borrow, what you need to borrow it for, your credit record, and whether you own a property or not. Here is a guide to the main types of loan that are available:
Credit Cards
For borrowing small sums of money over a short period of time, you may find that a credit card offers the best value. Many come with a low interest, or even a zero percent interest introductory offer, so if you can pay back the loan fairly quickly, you will not have to pay much in the way of interest on it. However, if you do not pay off the loan quickly enough, the interest can really start to mount, which could place you in a vulnerable situation financially. Also, if you need the money for something that cannot be paid for with a credit card, such as a second-hand item, then it may not be a viable option, as withdrawing cash with a credit card can be hideously expensive.
Secured Loans
A secured, or homeowner loan is one in which the borrower has to put up an asset, usually their home or another property, as security for the loan. If the borrower falls too far behind with the payments, then the lender may repossess that asset in order to recover their money. Because they represent such a low risk to the lender, they are usually in a position to offer high loan amounts and low interest rates, so if you need to borrow a large amount of money, then a secured loan may be your only option.
Personal Loans
A personal, or unsecured loan, is a type of loan that does not require the borrower to put up any assets as collateral. As a result, lenders have to have reason to believe that the borrower will be able to pay back the loan without too much trouble. In order to obtain a personal loan, you need to provide the lender with proof of your income, and they will always perform a credit check to see if you have a history of paying back loans on time. If you have a low income, or a poor credit history, you may still be offered a personal loan, but you will probably only be offered a small loan amount with a high interest rate.
Types.org.uk
Information on this article was taken from LoansIreland.ie.
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