You might need a personal loan for various reasons from funding a new business, to fixing up your home or repairing your car. There are quite a few different loans that you can avail depending on your need.
The first is a personal loan which are offered by most banks, and the proceeds may be used for virtually any expense.
Typically, personal loans are unsecured, and range anywhere from a few hundred to a few thousand dollars.
As a general rule, lenders will typically require some form of income verification, and/or proof of other assets worth at least as much as the individual is borrowing. The application for this type of loan is typically only one or two pages in length. Approvals (or denials) are generally granted within a few days.
When consumers use credit cards, they are essentially taking out a loan with the understanding that it will be repaid at some later date. Credit cards are a particularly attractive source of funds for individuals (and companies) because they are accepted by many – if not most – merchants as a form of payment.
In addition, to obtain a card, all that’s required is a one-page application. The credit review process is also rather quick. Written applications are typically approved (or denied) within a week or two. Online / telephone applications are often reviewed within minutes.
Also in terms of their use, credit cards are extremely flexible. There are definitely pitfalls, however. The interest rates that most credit-card companies charge range as high as 20% per year.
Homeowners may borrow against the equity they’ve built up in their house using a home equity loan. In other words, the homeowner is taking a loan out against the value of his or her home. A good method of determining the amount of home equity available for a loan would be to take the difference between the home’s market value and the amount still owing on the mortgage.
The downside to these loans is that consumers can easily get in over their heads by mortgaging their homes to the hilt. Furthermore, home-equity loans are particularly dangerous in situations where only one family member is the breadwinner, and the family’s ability to repay the loan might be hindered by that person’s death or disability.
A home equity line of credit acts as a loan and is similar to home-equity loans in that the consumer is borrowing against his or her home’s equity. However, unlike traditional home-equity loans, these lines of credit are revolving, meaning that the consumer may borrow a lump sum, repay a portion of the loan, and then borrow again.
It’s kind of like a credit card that has a credit limit based on your home’s equity! These loans may be tax deductible and are typically repayable over a period of 10 to 20 years, making them attractive for larger projects.
Cash advances are typically offered by credit-card companies as short-term loans. Other entities, such as tax-preparation organizations, may offer advances against an expected IRS tax refund or against future income earned by the consumer.
Cash advances are easy to obtain and the money is availed rather quickly. A person just needs to be 18 years of age or older, have a steady job bringing in an income of at least $1000 per month, be a citizen of the United States and have a valid checking account.
Many people use these kinds of loans for urgent expenses that crop up in daily life from medical expenses to auto repairs. The downside is that if the loan cannot be paid back in a couple of weeks, the interest rates can be quite high for a long term loan.
The Small Business Administration (SBA) or your local bank typically extend small business loans to would-be entrepreneurs, but only after they’ve submitted (and received approval for) a formal business plan.
The SBA and other financial institutions typically require that the individual personally guarantee the loan, which means that they will probably have to put up personal assets as collateral in case the business fails. Loan amounts can range from a few thousand to a few million dollars, depending on the venture.
Jack R. Landry has a PHD in financial services and has written hundreds of articles relating to consumer services and payday cash loans. He has been a consumer advocate for
nearly 25 years.
Jack R. Landry