A Guide to the Different Types of Loans
There are several different types of loans on the market. We’ve put together a quick breakdown to help you understand the difference between them.
Loans allow you to borrow a fixed amount of money and repay it in equal amounts over a set period of time (the term), normally at a fixed interest rate.
How much you can borrow and the interest rate you’ll be charged will depend on the type of loan, your personal situation and your credit score.
Payday loans are short-term loans designed to be paid back within 28 days – e.g. your next payday. They are designed to bridge the gap from one paycheck to the next. Used predominantly by repeat borrowers living paycheck to paycheck.
States regulate payday lenders differently. Which means your available loan amount, loan fees and the time you have to repay may vary based on where you live. Want to know more? You can continue reading here.
Debt Consolidation Loans
A debt consolidation loan is designed to help you if you’re struggling to pay a number of debts to different lenders by moving all your debt into one place.
The main benefit of a debt consolidation loan is that you will have one monthly payment to make instead of several. Depending on the interest rate, it can also lower the amount you repay each month.
Bad Credit Loans
If you have a low credit score or don’t have a credit history at all, you may struggle to get a loan from a bank or building society. But you could be eligible for a bad credit loan from another lender. If you are in this situation, you can read more about loans for poor credit for some extra tips.
Installment loans definition is simple as its name suggests. It is basically any credit that is given to a borrower in fixed amounts. Which is expected to be paid back in equal amounts. The payable sum is usually the principal amount, interest rate, and any other fee charged by the creditor. The terms are that the borrower makes installments every month, though some creditors accept weekly or bi-weekly installments.
What do you need to consider when taking out a loan?
The representative APR: Advertised loan APRs are ‘typical’ or ‘representative’ rates offered to at least half of successful applicants. You’re more likely to be offered the advertised APR if you have a good credit history.
Repayments: Every month during the term, you’ll owe a monthly payment to the lender. This payment will include money toward paying down the principal of the amount you owe. As well as a portion of the total interest you’ll owe over the life of the loan.
The term: You can pay less each month if you opt for a longer-term (time period) over which to repay a loan. But the longer the repayment term, the more interest you’ll pay.
Loan amount: Think carefully before borrowing more money than you need as the bigger the loan amount, the greater the commitment you’re making.