What are loans and what are they used for?
Although most people may have a general understanding that a loan is money borrowed from someone else with an agreement to pay that money back within a specified period of time, many people are in financial trouble today because they simply do not understand the nuances of the concept of a loan and the many different types of loans that may be procured from different sources.
Below this article will discuss some of the different types of loans available as well as some of the different avenues that people may use to obtain loans.
One – The “traditional” loan
Although the word “traditional” may actually be a misnomer, the general concept when most people think of a loan involves a large bank. Multinational banks have the most money to advertise their loan services, so when most people think of a loan, they will naturally equate that to a multinational bank.
What many people do not know is that a traditional loan may not be in their best interests. Because they are unaware of the different types of loan packages that they are eligible to receive, they assume that the large bank is the only game in town.
In fact, a large bank tends to be quite impersonal when it comes to loans for small business people and individuals. Large banks are best for large businesses with large timelines and large sums of money saved up to protect themselves from loan default.
Two – The payday loan
A payday loan is a short term loan usually given by a business which specializes in such loans. Payday loans usually do not have to be backed by any collateral except the knowledge that the borrower has a job and will be able to pay back the loan within a specified period of time.
Payday loans often have high interest rates, but the term is usually so short that the actual cash payout because of the interest is nominal.
Three – The car title loan
A car title loan is a type of short term loan in which the collateral used to securitize the loan is a vehicle. Usually a car title company will allow the borrower to keep the vehicle in his or her possession during the term of the loan, taking possession of only the title of the car.
Four – Second mortgages
Many people also use the equity in their house as a sort of bank. Banks are usually happy to let you borrow money against the accumulated value of equity in a home. This type of loan, although it may be different because of the structure, is usually known as a second mortgage.