Nowadays, it’s normal and common to borrow money from banks, lenders, and other financial institutions to help pay for living expenses. Loans can be used to make planned purchases like a house, car, vacation, or an expensive appliance. Or they can be a saving grace when you find yourself in an emergency without savings that you can use to cover the expense.
Knowing what loans are available before you need them is always helpful.
Why Credit Score Matters
The ability to secure a loan with good terms depends largely on your credit score. A good credit score is above 660 and is determined by the following:
- Payment History
Your payment history is probably the most critical factor in determining your credit score, accounting for 35%. Payment history shows that you pay your debt and that you pay on time.
- Amount Owed
Another major factor used to determine your credit score is the amount you owe and this counts for 30%.
- Amount of Credit Available vs. What You Use
Lenders review how much credit you use and how much of your credit is still available.
- Types of Credit
A mix of credit is favorable as it shows lenders how you manage different types of credit. A good credit mix would include a few loan types like a mortgage, auto loan, credit card, student loan, and a personal loan, provided you pay these off consistently.
- New Credit
Lastly, your credit score is affected by any new loans you’ve applied for and secured.
Types of Loan
Depending on what you need funding for will determine the type of loan you apply for. The most common loan types are:
- Mortgage or Home Loans
Even if they save up for years, most people won’t have enough to purchase a house in cash, so they use a home loan to finance this purchase. Mortgages are long-term, secure loans that use the house as collateral. The house can be repossessed if you can’t pay your mortgage installments.
Typically, the monthly installments for home loans are fixed and are paid back over 20-30 years. Many people choose to put down a deposit towards the home to reduce the amount they pay in interest.
- Auto Loan
Like a house, many folks can’t afford to buy a car without it being financed. Auto loans are secure, with the vehicle used as collateral and can be used to purchase new or used cars.
The interest rates for auto loans vary between states, and the timeframe you have to pay can be anything between two to seven years.
Since vehicles are considered liabilities, financial experts advise paying as much as you can afford as a down payment to reduce your monthly installment rates.
- Personal Loans
Personal loans can be used for anything. You can use it to pay your monthly bills or for a large purchase that is not within your budget. Many personal loan types are available, so shop around before committing to find one that best suits you.
Securing a personal loan is easy, especially if you have good credit. You can apply in person at a bank, from a lender, or online. Interest rates and payment terms vary, but with a good credit score, you can get a loan with a reasonably low-interest rate and a few years to pay it back.
An online personal loan application process can be the most convenient if you want to compare rates. To apply, enter your details into an online lending network once. It will send your application to a few lenders, who will then send you loan offers that you can compare.
For folks with a poor credit score, the options of personal loans available to you are limited. The easiest way to secure a loan is to opt for a No Credit Check Loan. While these loans can pay you the cash quickly, which is great when you’re in a bind, the interest rates are typically high.
Also, the repayment terms are tight, leaving you with little time to repay the loan. This could lead to a cycle of borrowing and amassing debt that can be difficult to pay off. So consider all your options before going this route.
An easy way to get cash while avoiding a credit check is to use your existing line of credit. If you have a credit card, you can withdraw some money from the ATM as long as you have a pin code.
You can set up the pin code online or with your bank or credit card company. The amount you are permitted to withdraw is usually lower than your swiping amount and has its own balance.