Buying a house? Moving to a new city? Want a bit more runway? There are many scenarios in which one might consider taking a loan. However, before such a situation presents itself, it’s important to know enough about a loan to make a responsible, safe decision that will benefit your current financial situation.
Secured or unsecured, many types of loans available today have different benefits and purposes, but they all come with some risks, too. This is why it’s important to understand exactly what you’re getting before opting for one.
So how do you choose the best loan to fit your needs? And how do you recognize the ones that will benefit your financial situation the most?
Unlike predatory loans that come with higher interest rates, most personal loans offer fair and transparent terms to the consumer.
What You Need to Know About Personal Loans?
Personal loans come in a few “sizes,” depending on what you need. The way they work is based on previous agreement: either in full sum or spaced smaller bites, you will receive an amount of money which you will later repay with interest.
Besides that basic concept, a loan may require collateral. Now, this is a very significant detail to keep in mind in case you can’t repay the loan in time. Let’s say you take out a loan to buy a car.
If your loan is secured, your car will act as collateral. If your loan goes unpaid and goes into default, your loaner will be entitled to the car (you won’t have to repay the loan in this instance).
Secured loans carry lower interest rates. Unsecured loans, such as credit cards, come without collateral and are treated as riskier for the lender. Hence, higher interest rates are typically charged.
At CreditNinja, our unsecured personal loans are tailored to meet your needs and enhance your current financial health.
Types of Personal Loans
- Secured Installment loans require collateral. Secured loans are typically used to buy a new home or a car. They are some of the most affordable loans, with rates set in advance and spread out for monthly payment.
- Unsecured installment loans require no collateral, and are typically smaller dollar amounts used for unexpected personal expenses.
- Home Equity loans are used to cover larger bills or medical expenses, and your home counts as collateral (hence the name).
- Payday loans work as instant, short-term solutions when you need money urgently. After borrowing, you are supposed to repay the loan the next time your paycheck arrives. These loans come with higher interest rates. CreditNinja offers fully transparent payday loans with a 3-day cool down period that gives you enough time to carefully think through your decision.
- Title loans are similar to payday loans (APR of 300%), except they also involve your car as collateral. Both payday and title loans are considered predatory and should be avoided.
- A cash advance is a loan you get from a payday lender by writing a check and borrowing an agreed amount of money. However, when repaying this balance, you have to pay back everything you borrowed, including the lender’s fee and interest.
- Debt consolidation loans aim to cover all other debts you may have and replace the multiple costly interest rates with just one. What’s important here is to take a consolidation loan with an interest lower than that of your other bills, otherwise it has no point.
- Bad credit loans are intended for people who have a credit score lower than 630. For this reason, these loans are riskier for lenders and typically come with a higher interest rate.
Benefits of Personal Loans
Personal loans are not just an extra safety valve. Even if you have a good emergency fund or don’t plan on making a big investment any time soon, taking a personal loan can be very rewarding. Consider these points:
You can boost your credit score faster and more efficiently than you would with only credit cards by clearing their higher interest rates. This works for other high-interest debts, too – paying them off as quickly as possible will leave you with a lower rate to deal with in the long run, and save you a lot of money almost effortlessly.
If you are tangled between multiple debts to pay for, choosing which one to pay first and balancing between penalties is just an endless downward-heading spiral. In this case, you can take a debt consolidation loan to pay off the other debts, and leave only the single loan instead. This means no more penalties or impossible prioritizing, just a single bill you can count on every month.
If you need to borrow some money but aren’t comfortable with the idea of collateral, you may want to get an unsecured personal loan. In this way, you aren’t risking your assets. Keep in mind, though, that unsecured loans often have higher interest rates which may carry certain risks.
How to Recognize Predatory Loans
Although there isn’t a single definition of what a predatory loan is, some or all of these general characteristics are usually present:
- Unjustified high interest rate for a short-term loan
- High penalties, designed to keep you in debt
- Unclear or changing billing system
- Deceptive or not fully disclosed conditions of agreement
- Non-negotiable terms
Simply put, if you are having trouble fully understanding some basic points of the agreement or simply feel uncertain about it, it is best to do your homework and research before signing an agreement. Demanding transparency, staying well-informed, and having a professional by your side will ensure you get the most out of a personal loan.