Loans and credit are the backbone of a healthy and growing economy. Loans are popular among consumers looking to get a new home, car, go on a vacation, launch a new business, or study further, among other things.
With the financial industry embracing digital technology, it has become easier than ever to get a loan.
According to the Consumer Financial Protection Bureau, 1 in 10 Americans has never taken out a loan and are considered ‘credit invisible’. But credit is a good thing, provided it is obtained at a competitive rate and utilized responsibly. This makes it important to understand the various types of loans.
Here are 5 popular loans that are easily available online today.
These loans are offered by banks, credit unions, online lenders, and other financial institutions. Personal loans are unsecured, which means collateral is not required. High credit scores are preferred in these since loan amount, duration, and interest rate all depend upon the borrower’s credit worthiness.
Most online lenders offer easy paperwork and quick processing. These loans can be used for anything from paying for your wedding (which is amazing that some people spend that much on a wedding) to purchasing a new home entertainment system. Typically, loans for up to a few thousand dollars are repaid within 2 – 3 years and if you do this too much you never get ahead in this world.
Like America, you will be a debtor person. America started to become a debtor nation in the early 1920s but let’s not digress on this too much.
According to data compiled by Federal Reserve, interest rates on personal loans vary between 9% and 12%.
However, if you have a poor credit score a lender may approve you for a loan with a high interest rate touching 15 – 18%. Proof of assets and income verification is required by the lenders in personal loans.
Cash advances and car title loans are short term loans and are easily available online. Cash advances include short-term loans offered by credit card companies and short-term lenders such as payday lenders.
They also include loans offered by tax-preparation companies against an expected refund from the IRS.
Car title loans are secured loans and are given against the value you hold in your vehicle. These loans are a great way to raise some quick money when you are in immediate need of funds, such as medical emergency.
Since both car title loans and cash advances are short-term, you can easily use them to meet immediate cash requirements. However, it is important that you make provisions to repay these loans as soon as you can.
Cash advances can help you obtain a loan based on future income. Payday loans are a popular tool among people looking to get some money till the next paycheck.
Online auto loans can be used to purchase both new and used cars. The typical auto loan ranges anywhere from 24 months to 60 months, though longer loans with 72 or 84 months are becoming increasingly common.
Since used cars are riskier to finance, lenders limit the loan duration to 48 or 60 months for older car purchases.
You can easily finance an auto loan online directly through a bank or credit union or other provider. There are some dealerships that have online applications to make the whole process more convenient.
While car dealers are expected to have higher terms, there are some that offer manufacturer-sponsored, low-rate or incentive programs to buyers.
Car value tends to decline over time with the highest decrease in the first 2 years. Hence, it is advisable that you find an auto loan with shorter loan terms and larger down payments because of rapid depreciation of car value.
It is easy to find yourself in an upside-down loan situation where your loan repayment amount is more than what your car is currently worth.
You can avoid this situation by taking an auto loan with short repayment schedules after evaluating the rate of depreciation for your particular vehicle.
Make sure you avoid defaulting on auto loans because the consequences can be significantly severe. Most auto loan lenders require repayments even after repossession of the car.
Credit cards are a common form of revolving credit or open-end credit loans. These are a popular loan type and easily available online. You can apply for multiple credit cards with the click of a button from the convenience of your home if you have an average or good credit score.
People with poor or bad credit scores might find it a little difficult to find an online lender. There are several financial institutions that offer credit cards to sub-prime borrowers as well.
Credit cards are accepted at most merchants and can be easily used to pay for daily expenses, including groceries, medicines, transportation, and clothing. However, you need to understand that interest rates on credit cards average at 15% and are applied when the monthly balance is not paid in full.
There are certain introductory credit cards with temporary 0% rates. These cards can be useful to pay your debts and repair credit history.
Most credit card companies advertise 0% offers online on their websites and other portals. However, you need to be careful to repay the loan before the introductory period runs out to avoid huge interest charges.
Small business loans can be applied online at local banks or the Small Business Administration (SBA) and because of the stellar economy a lot more people now are starting their own business. It is important to understand that the SBA does not provide the loan but works with other lenders who provide the loan and process the application.
A number of these lenders have online applications and approval processes. Small business loans are a great way to raise cash if you are seeking funds as a would-be entrepreneur. Typically, a personal guarantee for the loan and your business plan is required.
Loan terms vary as per the lenders as does the application and processing fee. Generally, small business loans are available for duration of 5 to 25 years.
It is important that you read contracts for small business loans carefully and ensure your estimated profits are viable enough to cover the loan.
Small businesses are vital to America. Some people believe that small businesses built America.
Paying off Your Debts is Critical
Online loans are convenient, handy and easy to apply for. You can easily use them to establish a credit record. There are some loans like car title loans that can also help you repair your credit score.
However, it’s salient that you always read the loan contract carefully and make sure to acquire the funds to repay them unlike Charlie Kenton from Real Steel who had to find out the hard way that not paying your debts is unwise.