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Most Americans will end up taking some form of loan in their lifetime. Among the most common are student loans.
Student loans introduced in 1958 in response to Cold War fears that the USSR was gaining a technological edge. While the Cold War eventually ended, the new system didn’t, and now it helps most college students get access to education.
Life goes on after college, and soon you’ll find new opportunities and new types of loans to help you pursue them. Most people take out a loan at least once. It’s wise to learn all forms of loans so you can get the best deal. Learn more here.
What are all the different types of loans, though, and how are they used? We’ll talk more about that in this article. It is wise to know the pros and cons of different loans. Doing so can steer you clear of predatory lenders and secure you a higher loan amount.
Secured Personal Loans
Personal loans have two categories: secured and unsecured. The difference between the two is that secured loans require some form of collateral. Unsecured loans are usually credit-based and cater to consumers with decent credit scores. Collateral loans are for subprime borrowers who have poor credit.
The upside of this is that secured loans don’t charge as much interest, meaning that you’ll pay less in the long run. However, listing something as collateral means that if the loan is unpaid, the property is surrendered and auctioned off by the lender.
Unsecured Personal Loans
Unsecured personal loans work the opposite way. You promise to pay the loan back, but you don’t offer up any collateral. Again, you may need good credit to qualify.
While you won’t have to give up anything as collateral if the loan is unpaid, you will be charged a higher interest rate and given less money. Only take out an unsecured loan if you are sure you can repay the debt. Failure to do so could result in bankruptcy or worse.
Credit Card Cash Advances
If you need a smaller loan, you may want to consider a credit card cash advance. Credit card cash advances are loans borrowed against the credit remaining on your credit card, hence the name.
This loan is one of the easiest to get because you’ve technically already had the money. The only difference is that you’re taking it in the form of cash rather than a credit card charge. Keep in mind that the interest rate will be high. As with everything financial, your credit report is going to influence this. The better your credit, the higher the loan amount.
Title loans relate specifically to your car. They allow you to borrow up to one-half of your car’s value using your car as collateral. Many lenders use the KBB to determine vehicle equity value. The more the worth of a vehicle, the higher the loan amount.
That makes for a smaller loan, but you’ll have to repay it within 30 days. Your loan shouldn’t be higher than a few thousand, so repaying it within a month shouldn’t be too difficult. Nevertheless, beware of auto repossession if you fail to repay your loan.
Payday loans are very controversial in the financial world. Many states forbid them. That is because consumers often get caught in an inescapable debt cycle.
There are a few reasons for this, with the main reason being that payday lenders are very exploitative. The cost of repaying the loan in total may amount to several times the amount you borrowed, and that could be the least of your problems. Never take out a payday loan.
Payday Alternative Loans
Payday alternative loans are less risky versions of payday loans. They offer more time for the customer to pay back and don’t have high-interest rates. This is a better alternative to payday loans but still not ideal. Look for other loan options before seeking a payday alternative loan.