Personal loans are a great way to accomplish a number of goals, such as paying for home improvements, a dream vacation, simplifying finances or when you need quick cash in a pinch. Most personal loans are for a short amount of time and can vary from only a week, such as a payday cash advance, a few months, perhaps to finance that dream vacation or to do a few home improvements, or for a few years. There are a few different types of personal loans, and these loans can be referred to by a variety of names: personal loans, payday loans, instant loans, short term loans. Before taking out any of these types of loans, it is important to understand the ins and outs.
The two basic types of personal loans are secured and unsecured and the difference is simple. A secured loan is a loan based on collateral. The consumer applying for the loan must provide some type of collateral, usually of similar value to the amount being loaned, such as a car or home. Then, in the event the consumer defaults on the loan, the lender can sell the collateral to recoup their money. An unsecured loan is based completely on the consumer’s promise to repay. These loans are typically associated with more risk to the lender and therefore can result in a slightly higher interest rate. For consumers with bad credit, an unsecured loan can be ideal, and also serve as a method of rebuilding their credit score.
Payday loans, which can be very valuable for consumers with little or no savings, or those with poor credit, usually require repayment by your next paycheck. These loans can sometimes be associated with a higher interest rate, but are an important resource as they are instant personal loans. This means if you are looking for a quick cash advance, you will not need to wait for approval, which can sometimes take a few days or even up to a week.
Payday lenders are held to the same standards as any other lender, meaning they must disclose the same information to borrowers as, for example, a bank is required to disclose. No matter which payday lender you decide to go with, it is important to read the fine print of the loan so you know exactly what you are agreeing to.
Those researching a personal loan should also look for additional fees. All loans have fees associated with them, whether they come in the form of closing costs for buying a home or a processing fee for the paperwork. While most of these fees cannot be avoided, it is good to know what they are up front so you can be prepared to pay for them. Some lenders will roll all of these fees into the loan, the Federal Truth in Lending Act makes it mandatory for lenders to take into consideration all the additional payments that you make to procure personal loans and disclose them to you.
Examining the annual percentage rate (APR) will give you the most basic idea of the interest rate you will pay annually and is the best way to compare personal or payday loans. The other way to compare is the amount of time required for repayment. The APR may look the same on a loan, but those with a longer repayment period may cost more in the end, however, a longer repayment may also lower the monthly payment, which for some borrowers is extremely important. It is best to evaluate your personal needs before choosing a loan.
Any type of personal loan, secured, unsecured, cash advance, short term or longer term is vital to consumers. These loans allow borrowers to have many options when they need extra money. There are many things to consider when shopping for a loan and doing the proper research can save you money no matter which type of loan you choose.