What is a Loan?
A loan is a fixed-rate loan paid monthly for a set term period, usually between 2 and 5 years. Loans are not attached to any asset, but secured loans will be fixed to collateral that you own.
Reasons To Get A Loan
There are many reasons you might consider finding a personal loan online, such as making a large purchase, consolidating debt, or needing quick cash for a financial emergency.
Financial emergencies
Home renovations
Debt consolidation
Medical emergencies
Reason To Get A Loan
Where to Get A Loan
Many financial institutes offer personal lending. Some have more stringent acceptance criteria, while others focus on smaller loans for those with bad credit. It pays to shop around to find the right lender with the most competitive rate.
Online Loans
Because of the competitiveness in the current lending marketplace, lenders are offering hyper-competitive rates for loans online. Traditional lenders, such as loans from banks or credit unions, are no longer always the cheapest place to get a loan.
You can now apply for loans online from the comfort of their own homes without having to ever step foot in a store.
Consumers can now apply for loans online and get approved without setting foot inside a brick-and-mortar bank. Knowing the different types of loans available allows you to better understand all your options and choose the loan that’s best suited for your situation
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Secured Online Loans
A secured loan is one that you take out against something you own, generally a vehicle or a home. The asset is considered collateral. If you default on the loan, the lender will seize the collateral to help pay off the loan.
Generally, the interest rate on a secured loan is lower than an unsecured loan, because the risk is lower. In fact, you may even be able to negotiate a lower interest rate on a secured loan.
Consumers with better credit ratings tend to get better terms and interest rates on secured loans, as the risk to the lender is lower. Furthermore, a secured loan may also have more flexible repayment terms.
Examples of secured loans include:
Mortgages
Home equity line of credit
Home equity loans
Auto loans
Recreational vehicle loans
Secured Loans Examples
Unsecured Online Loans
An unsecured loan does not involve any type of collateral. With this type of loan, the only recourse the lender has on your default is to freeze your account.
They can then attempt to collect your debt using a debt collection service. This will cause damage to your credit report and possibly prevent you from taking out any other loans or getting a mortgage for a long time after you resolve the issue.
The lender generally ties the amount of money you can borrow using an unsecured loan to your debt-to-income ratio, assets, and credit history. Because the lender is taking on more risk, an unsecured loan usually carries a higher interest rate.
An unsecured loan may be referred to as a personal loan or signature loan. These types of loans are generally reserved for those with above-average or higher credit ratings.
>> Find out how Financer.com can help you improve your credit score.
Personal lines of credit
Personal loans
Student loans
Credit cards
Unsecured Loan Examples
Different Ways to Borrow Money
If you need to borrow money, here are some different ways to do so.
Line of Credit (LOC)
A line of credit works like a credit card. The lender gives you a maximum balance, and you can then borrow as much as you would like from the line of credit – up to the agreed-upon maximum amount. Unlike a credit card, though, there are different phases for a LOC.
The initial phase is the draw phase when you can actively use the cash in the LOC. Then comes the payment phase, which is when you start repaying the money you drew. There may be an interest-only phase in between these phases, which is when you pay only the interest on the amount you have drawn.
Based on how the line of credit is arranged, you may be able to write checks through the account, or it may be linked to your debit card. A line of credit may be either secured or unsecured.
Conventional Loan
Conventional loans are generally used for large purchases, such as real estate or vehicles. This type of loan could also include a home equity loan or personal loan.
The amortization and repayment terms for a conventional loan are consistent and predetermined, so you know precisely what your monthly payment will be and how long you have to pay. A conventional loan may be secured or unsecured.
Payday Loan
Payday loans are also known as cash advances. Consumers often use these loans as quick solutions for emergencies. This type of loan is secured against your next paycheck and intended to be a short-term solution only.
Bridge Loan or Interim Loan
A bridge or interim loan can also be referred to as a single-payment loan, and borrowers generally use it as short-term temporary financing. Borrowers usually pay off a bridge loan in one lump sum rather than in scheduled instalments.
In some cases, a bridge or interim loan may be used to purchase real estate, including building a new home.
How To Get A Loan
Getting a loan is easy. Lenders tend to judge your creditworthiness based on your credit score and your income to debt ratio. Knowing those before applying for a loan will help you find the right lender.
Shop around and compare loan rates
Shopping around to find the right loan rate will ensure you are not paying more than you need to in interest and fees.
Every time you apply for a loan, the lender will run a hard credit check. This will slightly drop your credit score for a little while. That is why we recommend shopping around before applying for loans. That way, you don’t get multiple hard credit checks in a short period of time, dropping your credit rating.
Know your credit score
You can get a copy of your credit score for free once a year at www.ftc.gov. If you have low credit work on building up your credit score before applying.
Take the time to carefully review your credit report from the three major reporting agencies: TransUnion, Experian, and Equifax.
While you are reviewing your credit score, you can also resolve any flaws or errors. Keep in mind that lenders that require a credit check may also have minimum credit score guidelines. If you don’t meet that minimum, then there is no reason to apply.
>> How to increase your chance of acceptance when applying for a loan.
Do a budget
It’s essential to know how much extra cash you have to repay the loan regularly. Loan terms are usually over a few years, so make sure that you can cover the payments throughout that period.
Understand the terms and conditions
You must have a clear understanding of the loan terms before signing a final agreement. That includes knowing how much the loan repayments will be, the APR, and all fees associated with the loan.
Before applying for a personal loan online, it’s essential to make sure you understand the application process. Not all loans require a credit check. For instance, some payday loans or cash advances don’t need a credit check because your next paycheck is used as security. But these are high-interest loans and should be used with caution.
Where Can I Compare Loans?
Financer.com has made it easy to find loans online in a wide range of categories. Simply select the type of loan you’re looking for, and Financer.com shows you a variety of lenders offering loan options suitable for you.
