If our monthly paychecks were enough to make ends meet, save for the future and also provide for contingencies, the world would have been a better place. Alas! The reality is far from this utopian vision and we often have to make do with less money than we need. Therefore, it becomes essential to borrow money when a pressing financial situation arrives. It could be a medical emergency, some much needed working capital for your business or even some unpaid bills pending for long.
Here are the different types of loans that you could utilize for a monetary need.
These are a common type of credit that young college students take to pay for their college fees, accommodation, books and more. The money is to be repaid when students enter the workforce. In principle, this concept looks very simple but it could be very demanding too. In places like the US, student loans often get defaulted because fresh graduates are unable to secure a job. Though these loans are not inherently bad, you need a working plan to be able to pay them off and save your credit score.
If you want to buy a home but cannot pay for the full value upfront, you get a mortgage from a bank. The interest rate on these loans is very low and it is highly likely that you will be paying for the house for at least 25 to 30 years. If the debtor is unable to pay the installments, he risks foreclosure of the property which is then bought by someone else.
As the name suggests, such borrowings can help you in financing a car. The concept is quite similar to that of mortgages- you buy a car that you cannot pay for in full as the bank takes care of the payment. You then repay the bank in small installment every month. If you don’t, your car will be seized by the bank. Such loans are also available at many small lenders and can even be availed directly at the store.
You can get this type of credit from banks and even the government. Such money is mostly used for providing working capital to a business. The banks keep a higher rate of interest on these credits. The government, on the other hand, can provide several rebates as well.
Short term loans
Also known as payday loans, this type of credit often comes with the highest risk for the lender. Therefore, it has a higher rate of interest as well. You only get small amounts between 200 to 1,000 GBP loans from the payday loan agencies. The credit score doesn’t matter much in these loans. You only need to be an adult UK citizen with a full-time or part time job that earns you at least 600 GBP per month. Several of these lenders are authorized and licensed by the FCA as well. You pay the principle + interest when your next paycheck arrives.
For small needs, payday credit is great but if you want to buy assets, mortgages and auto credits are better options. Find your perfect lending option by defining your needs.