hen looking for debt financing for your business or any type of personal expense, there are a variety of sources you can go for help, namely; banks, commercial lenders, and personal credit cards. And depending on your circumstances, the lender may assess and help you decide the exact type of financing that is appropriate for your needs. But it helps to have a general idea of the different types of financing before walking into a bank or filling a form online.
Traditionally, most loans were offered subject to the provision of collateral, but that has changed now. The two broad categories of loans fall either in the secured or unsecured criteria. Either way, it is best to understand what your lender is offering before getting into a deal. With that in mind, let’s look at the types of loans you can easily get in a financial or lending institution.
Payday loans are short-term loans that involve borrowers taking small amounts of cash that are payable due on the borrower’s next pay date. Also referred to as cash advance loans, payday loans have short payment terms that are usually somewhere between two weeks to a month. These loans, according to this Singapore licensed money lender, are quite convenient for salaried people who need fast cash. That is in part because they are quick to process due to little or no underwriting involved. And although they are often characterized by comparatively high-interest rates, they remain a popular and easily accessible source of borrowed income.
To repay a payday loan, all you have to do is write a post-dated check or give a written note to authorize the lender to automatically deduct or withdraw the cash owed plus accrued interest directly from your bank account. Overall, payday loans remain a viable emergency cash option when you have nowhere else to look.
Line of Credit Loans
This type of loan is an ideal choice for proprietors and small-scale business owners as it offers a permanent arrangement that protects them from emergencies and stalled cash flow. A line of credit loan is intended for the purchase of inventory, payment of running costs, and the working capital that small businesses need.
While lines of credit loans are short-term, they are structured on lengthier terms than payday loans. Moreover, every bank has its method of funding. But how it works generally is that the bank transfers direct deposits to the business’s checking account to take care of checks and balances. By doing so, the business repays the amount with interest over the loan repayment term.
Peer to Peer Loans
These loans serve up a massive shift from traditional loans and the banking system. That is, while traditionally people take loans directly through financial institutions, peer-to-peer loans are a recent development. Also referred to as peer-to-peer lending, peer-to-peer loans involve taking loans from colleagues as opposed to conventional lenders such as banks.
Colleagues or individual lenders have become mainstream because they tend to be more flexible with regard to their approval terms, credit requirements, and repayment terms. And by doing so, they are regarded as bigger risk-takers than traditional financial institutions.
Secured Personal Loans
As the name suggests, secured loans are those that are tied to collateral. How they work is that the lender is legally obligated to tie your loan to an asset such as your car or house as collateral (security) in the event of loan defaulting. And because of the security involved, secured loans tend to be huge sums of money compared to other forms of personal loans.
In the off chance that you fail to repay in accordance with the agreed-upon terms or dates, then the lender is legally mandated to repossess the asset you indicated as collateral. Examples of secured loans include mortgage loans and car/auto loans.
The criterion involved in getting a secured loan is nonetheless quite simple. That’s because you will have to offer up an asset as collateral before the amount is deposited in your bank. And due to the huge amounts, such loans are structured on lengthier terms than say, payday loans. Moreover, the interest rates are quite favorable as the lender considers the loan to be less risky. The only downside to secured loans though is that in the event of a fallback in the repayment process, then the borrower might easily lose their assets.
As discussed herein, there are several loan types you can easily access with little or no underwriting such as peer-to-peer loans, while others like the secured loans need the borrower to provide collateral. Either way, they are all considered easy to access as long as you comply with the lender’s terms and conditions.