Get to know different kinds of loan to find the one for you.
Taking loans is not always a bad thing. Starting a business, going back to school, buying a car, renovating house – see, there are many good and valid reasons to apply for loans. Because, admit it, some things take a LOT of money.
Before you go straight to the first loan provider you find, we recommend you read this article to learn different kinds of loan so you can determine which one fits your needs best.
Overall, there are two kinds of loans: open-ended and closed-ended loans. Open-ended loan is a loan which you can borrow again and again and again, without having to pay off the previous debts first. This type of loan usually has credit limit. Sounds familiar? Yes, it’s because your credit card counts as an open-ended loan. On the contrary, closed-ended loan requires you to pay off all of your previous debts before applying for a new one. This is the kind of loan you take when you’re purchasing something huge, like house or car.
Now let’s break down the other kinds of loan.
Secured loan is the kind of loan that requires you to pledge your assets as collateral. Buying a car is a good example of secured loan. You purchase your car, apply for a loan from bank or car dealer, and pledge a collateral. This way, in the worst case where you couldn’t pay off your car installment, your lenders would take over your registered collateral. But, God forbid!
Mortgage also counts as secured loan, but it is only for purchasing properties, like house, apartment or office. The lenders are usually banks or other big financial companies. If the borrowers default, the lenders have the right to repossess the property and sell it to other people. Loan term varies, typically from five up to twenty years.
Unlike secured loan, unsecured loan doesn’t require any assets, so it generally serves for lower amount of money. There are several kinds of loan that falls under this category:
- Credit card cash advance
Every credit card has a feature called cash advance, which allows you to withdraw cash within a certain limit – usually up to 50% of credit limit. This loan is to be paid off when your credit card billing arrives.
- Payday loan
Payday loan is similar to credit card cash advance, but without any credit card. It relies on the borrower’s salary and employment records. This kind of loan usually takes higher interests, so make sure you have calculated your budget carefully.
- Peer-to-peer loan
Also known as P2P lending, peer-to-peer loan uses a digital platform to bring lenders and borrowers together. The online application process is usually quite simple and quick, with relatively affordable interests and short loan term.
Now ask yourself these questions: What do I need a loan for? How much do I need? How long do I want the loan term to be? And how much can I pay each month?
Answer these questions and proceed to create a money management plan – which must include the estimated amount of loans and interest rates. When it’s done, you know you’re ready to apply for the much needed loan.
For short-term P2P loan with low interest and varied loan term, visit SpotMe and follow the simple process!