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3 Common Types of Loans You Should Know About


3 Common Types of Loans You Should Know About

At some point in our lives, we all need to borrow money to pay for things. In those cases, it’s always to our benefit to know the common types of loans out there and which is best for our situations. There’s a number of things to consider when you’re taking out a loan, but here are a few of the best loan options out there.

Credit Card

People don’t always look at it through this lens, but a credit card is just another type of loan. Every time you purchase something with a credit card, you make a contract to pay off the balance by the next month. Credit cards are good for when you need something right now but won’t have the money for it for another few days or weeks.

You can pay off any debt you accumulate in credit card payments with no interest during the initial payment cycle, but remaining balances after the first month will start to gain interest. Opening a credit cards also usually requires a credit score check; people with lower scores are less likely to receive credit cards.

Personal Loans

One of the most common types of loans, personal loans come from banks. You can get them online as well as by going to a physical bank. These kinds of loans can offer anywhere from a few hundred dollars to a few thousand, and you can spend them on whatever your needs demand, whether it’s car payments or bills.

These loans are unsecured, which means there’s no collateral for the lender to seize if you don’t make payments. A typical payment period is two to five years, and loans are given only after an income verification and proof of assets.

Private Loans

These types of loans are much like personal loans, but instead of borrowing from a bank, you borrow money from a private organization or from a wealthy person. With the privatization of money loans comes less regulation; this dynamic offers both benefits and risks. One benefit is that you can use the money for purposes for which banks may not agree to loan money. But one of the major risks is that private lenders may charge increased interest rates compared to those of banks and other institutions. There are many ways to find a reputable private money lender, and it’s necessary to be careful when you’re choosing one.

Whatever your reason for taking out a loan, it’s always good practice not to take out more than you can reasonably afford to pay back. Doing so can result in having to pay it off for years longer than you expected or in the seizure of your assets.

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