If our monthly paychecks were enough to make ends meet, save for the future and also provide for contingencies, the world would be 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 unexpected bills.
If you need a loan to help you get by, 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 demanding too. In places like the US, student loans often get defaulted because recent 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 the full value upfront, you will need a mortgage from a bank to make the payment. The interest rate on these loans is often very low and it is highly likely that you will be paying for the house for at least 25 to 30 years. If you are unable to pay the instalments, you risk foreclosure of the property which is then bought by someone else.
As the name suggests, such borrowings can help you when buying a car. The concept is quite similar to that of mortgages – you buy a car that you cannot pay for in full and you use the loan to take care of the rest. You then repay the lender in small instalments every month – if you don’t, you risk your car being seized. Such loans are available from many lenders, both small and large. You may also be able to make an arrangement with the car showroom to pay off the balance of the car in instalments.
You can get this type of credit from banks and even the government in some cases. Such money is mostly used for providing working capital to a business, and can come with higher rates of interest when borrowed from the bank compared to a government loan. The government may also be able to offer a rebate in some instances, so it’s worth checking to see if you’re eligible.
Short term loans
Also known as payday loans, this type of credit often comes with a high risk for the lender, therefore the rate of interest is often higher when compared to other forms of credit. Payday loans are intended to be used as a short term finance solution, so you can only borrow small amounts (usually between 200 to 1,000 GBP). While your credit score is often checked and taken into consideration during the application process, it isn’t as critical as when borrowing from other lenders (such as a bank, for example).
Each lender will have their own criteria you need to meet before being considered for a loan. In the UK, some lenders will require that you are a UK resident over the age of 18, in full-time or part time employment with a set income. All reputable lenders in the UK are authorized and regulated by the FCA as well.
When it comes to making a repayment, you pay the capital plus 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.