You may think a loan is a loan, but there are a lot of options to explore when you need to borrow money. Each one has its own rules, repayment parameters and type of lender. It’s a good idea to learn more about the different kinds of loans below so you can be an educated borrower. Here are four kinds of loans you might not have heard of before.
1. Personal Loans
You can get a personal loan from friends, family, an institution or even a crowdfunding site. They can range in size and term length as the industry is growing and changing, adding more personal loan choices. The higher your credit score, the lower the interest rate you will likely qualify for. (If you are not sure what your credit profile is like, you can get a free credit report summary, updated every 14 days, from Credit.com.) It’s important to make sure you create a repayment plan you can afford and compare your options. An installment loan is when you take out a certain amount of money and pay it back in monthly chunks.
2. Equity Loans
You can also leverage the equity you have personally built for a loan. From home equity, your retirement fund or even through life insurance, you take some of the cash out that you have put into these systems and use them elsewhere, eventually paying the amount back — sometimes with interest. You will have to work with your mortgage lender, retirement saving institution or life insurance provider to work out the specifics of your options but in this situation you are, in a sense, borrowing from yourself.
3. Cash Advances
A cash advance is a loan you get from your credit card provider. These advances generally come with high interest payments and fees, so be sure you understand the terms before you take a cash advance. You can find your limit for a credit card cash advance on the terms of your credit card. It is the smaller limit listed along with your credit limit and is typically a few hundred dollars.
4. Debt Consolidation Loans
Exactly as it sounds, a debt consolidation loan allows you to pay off several old debts with one new loan. This can lower your interest rate, simplify your monthly payments, or both. It can sometimes help you get out of debt faster, but it’s important to look closely at fees and interest rates to make sure you won’t end up paying more in the long run.
Now that you know more about your loan options, you can figure out which loan types will work best for your financial situation. Just as important as understanding your loan is creating a repayment plan and keeping up with it.
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