Which Type of Loan Should You Get?

by on October 6, 2016

Finding a loan is a lot like finding a job. The more you need it the harder it is to get one! And just like finding a job, it’s important that you look in the right place and find the right type of loan for you. The first step in finding the best loan for you is to honestly evaluate yourself just like a lender would.

If you have good credit and lots of assets, it should be easy to get a loan and you should be able to get good terms (i.e. a low interest rate and a fair payback schedule). The types of loans for people with great credit and lots of assets would be along the lines of a collateralized loan such as a mortgage, home equity loan, or another type of collateralized bank loan. Credit cards would also fall into this category.

The next level of loan type would be for those with lower credit, fewer assets, or lower income. These are all risk factors that the lender takes into account. Having a better credit history shows the lender that you are more likely to pay the loan back and that you won’t miss any payments. Having more assets means that you have a lot to lose and that you could sell some of them to help pay your loans if you fell into financial trouble. And finally, having higher income means that you are more likely to have the cash to make the payments on your loan. More specifically, the lender will look at the difference between your income and your minimum payments to assess the chances that you can make your loan payments. The types of loans that fall into this category are mostly the same as above, except that they carry terms that are not as favorable, like higher interest rates and quicker payback periods.

The next level of loans are for those that really need them. Typically, when someone falls into financial hardship their credit takes a hit, their income shrinks, and they lose some of their assets. These are the same risk factors discussed above, but all of them make you a risky bet to the lender. That means you will have to pay higher interest rates and probably won’t be able to borrow as much as you’d like or need. The types of loans that fall into this category include payday loans, some credit cards, and title loans. A good example of this can be found at title loans Orlando.

No matter what your situation, you will probably be able to find a loan that works for you. If none of these options work you can always ask your friends or family for help, but the better option is to try to fix your situation by working harder and smarter. Try to find ways to improve your income, lower your expenses, and improve your credit.

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