What Are Loans
People take loans out for many different reasons and there are many different types of loans available. The actual definition of a loan is money or even property that is given to another person in exchange for a future payment that includes interest and other charges. In some cases, a loan is not a good idea for individuals to take out because it can hurt a person’s finances if payments cannot be made. However, in most cases, a loan is helpful to people’s lives. There are many different types of loans. There are auto loans, personal loans, and student loans.
What Is A Personal Loan?
There are currently two different types of personal loans available, which are secured and unsecured personal loans. There are also bank, peer-to-peer, and payday loans. When a customer is considering getting a loan, they are usually struggling with their personal finances and may be having trouble paying bills. A secured loan is when the borrower provides the creditor with collateral such as a vehicle. An example of a secured loan is a title car loan. An unsecured loan is a loan that is given usually from a financial institution or checks cashing business and no collateral is usually needed. The interest rates are usually high for unsecured loans because the lending institution is taking all of the risks. A peer-to-peer loan is when an individual or business receives a loan online after they have been matched with a lender. Lastly, a payday loan is a short-term unsecured loan and these loans are usually called cash advances. Payday loans are usually repaid with a set monthly payment and within a 6-8 month time frame.
What Is Credit?
When a company, business, or person provides money or some type of resource to another person and trust that person will repay them at a later date, it is described as credit. The most common businesses that grant individuals credit is usually banks or credit card companies such as American Express. People should keep track of how they use a line of credit because if it is used irresponsibly, this can cause a strain on the individual’s finances when they are trying to repay the debt. This strain is caused usually because they have spent more than was needed the high-interest rates have made the debt even larger. There are currently three different lines of credit that are available to the general public which are personal credit, business credit, and home equity credit.
A business credit is basically just a business credit card and there is usually no limit. Personal lines of credit are very similar to business credit, but the consumer usually has a limit as high as $50,000. Personal and business credit are both considered to be unsecured credit. Home equity credit is secured credit because the individual uses their home as collateral. Individuals who receive home equity credit are usually going to make big purchases such as a business investment, purchasing a vehicle, or to make home improvements. One final fact when it comes to getting a personal loan or credit is that they can both be secured or unsecured