Are you thinking about taking out a loan?
When it comes time to decide what loan is right for you, deciding can feel impossible. Should you get a secured or unsecured loan? What type of APR is good, and what happens if you don’t have great credit?
Before rushing into a financial decision, take a moment to pause. As you pause, let us guide you through the different types of loans, exploring their pros and cons. We’ll also give you a few of the best tips, to improve your chances of receiving approval on your loan application.
What do you need to know before getting a loan? Read on to get the best financial advice.
Table of Contents
Secured Personal Loan
Let’s say you’re considering taking out a loan to complete home renovations. You visit the lender and they offer to lend you $30,000 in the form of a secured loan.
To qualify, you have to put your car up as collateral. Now, if you default on your loan payments, the lending institution has the right to take your vehicle. This situation describes what happens when you get a secured loan.
Who should get a secured loan?
If you need a loan but have bad credit, a secured loan is perfect for shaping up your financial profile. Now, this may sound great, but it’s important to consider risks. If you decide to miss loan repayments, the lender will seize your vehicle without hesitation.
What are the pros of getting a secured loan?
Lenders can provide a secured loan option with lower-than-average rates. They can do this because there is little risk involved for them.
Another bonus is that you can fix your credit rating with timely repayment installments. Over time, you’ll be able to improve your chances of securing an unsecured loan.
Unsecured Personal Loan
You go into a bank and ask for a loan to help pay for home improvement projects or perhaps another type of venture. What type of loan do they offer?
Unsecured! In this situation, there is no collateral involved when it comes time to pay back the loan amount.
What are the pros of getting an unsecured loan?
Unsecured loans come with competitive interest rates. They can help you rebuild your credit score, making it easier to get approved for future loans or lines of credit. You also don’t have to worry about having your vehicle repossessed-which makes life much more comfortable!
Who should get an unsecured loan?
If you’re looking to borrow money without worrying about collateral, unsecured loans are right for you. If you need a larger loan amount than what’s offered by secured lenders, an unsecured option is perfect for improving your financial health.
Common Types of Secured Loans
Now that you know how the 2 loan types work, let’s look at some examples. Here are some of the most common types of secured loans available:
- Car loans
- House renovation loans
- Life insurance loan
- Mortgage loans
A home renovation loan can also be a home equity line of credit or HELOC. A HELOC is a good option when you’re certain you can keep up with repayments, even if you had an income disruption.
When you’re looking to take out a secured or unsecured loan, make sure the lender is going to provide you with the most competitive interest rate possible. They must offer clear terms, including an APR (annual percentage rate) and a monthly payment schedule for your convenience.
What Is APR?
APR stands for Annual Percentage Rate. This figure represents the amount you’ll pay in interest over a year, starting from when you took out the loan. Every time you make a repayment towards your debt, this percentage rate is applied to that sum.
You can determine what your interest will look like by using an online APR calculator. The higher your APR, the more money you’ll be paying overtime to pay back the loan amount.
Another thing to keep in mind is the reputation of the lending institution. How long has this company been around? Do they have a solid track record,? Or is it a fly-by-night operation?
You’ll also want to watch out for low-rate loans that seem too good to be true. This should serve as a red flag, especially when you start clicking on the small print and looking into their company history.
It’s always a good idea to read online customer reviews carefully before applying. Look for reviews from existing customers. Then do a Google search for the company name to see what pops up. If it’s an established institution with a solid reputation, like Plenti, you’ll likely see positive things about it.
What to Expect With Your Loan Application
Is this going to be your first time applying for a loan? You’ll be happy to know that most lending institutions have gone digital with the application process. Nowadays, it’s easier than ever before to apply for a loan with a few simple steps.
To protect your personal information, we suggest applying for loans using a secured network. Your home internet is a good example of a secured network. Whereas, using the public wifi at the coffee shop could make you a prime target for hackers.
Once you have a quiet, safe location to apply, you’ll want to gather all of your information. When applying for loans you’ll need to know your social security number, income, and employment status. Make sure to have these details on hand before applying.
If you’re wondering how much time you’ll have to spend filling out forms, the answer is not very long! In most cases, they’ll only take about 30 minutes or less.
After You Apply for a Loan
Great news! Your application has been accepted. Now comes the fun part, waiting for your funds to arrive.
Of course, there’s no specific time frame that you can expect your funds to show up. Sometimes, the process could take a few days, while other times it may take months.
What’s Your Credit Score?
Moving on, you should know your credit score, before you start applying for loans. If you don’t know it already, now’s time to find out your creditworthiness.
Credit scores can fall under a few rating categories. There’s excellent, good, poor, and bad credit. You should aim for at least 700 or more before applying for loans.
If you have a score below 650, there are some great secured loans available to help establish or improve your credit score.
Are you worried about missing a payment? Remember that you can always go online to monitor your payments. You’ll have to set up an online account to do this, but they’re usually free to use once you create it.
As far as managing intentionally missed payments, that’s a whole other ball game. When you default on your loan, you’ll have to deal with serious consequences.
You could face hefty fees, high interest rates, and legal repercussions if you don’t make your payments. The best thing to do is avoid missing a payment at all costs.
Taking Out a Loan as a Business Owner
Many small business owners need to take out a loan to grow and maintain their ventures. Several large institutions specialize in business loans, and these institutions can be incredibly helpful for entrepreneurs working to expand their operations.
Before you can receive a commercial loan from an institution, you’ll need to get approved by the Small Business Administration (SBA). They oversee all types of commercial loans, whether they’re backed by the government or not. The SBA has a free online tool called, “Lender Match”, to help you get the ball rolling.
Although it takes time, starting the application process early is vital for securing a loan during your company’s growth stage.
Doing Your Research
Now that we’ve gone over different types of loans available to consumers, there’s one last thing you should do before applying: research! Every lender will have different terms of the agreement, so you need to find the best loan option.
Don’t be afraid to ask questions about rates and fees. You should also consider whether a lender has any hidden fees types of surprises that can lead to severe financial problems if they’re not addressed down the road.
It’s also essential that you look into how long it takes before a credit check is conducted. If you need immediate cash, this aspect could make or break your chances of getting approved on time.
Get Your Money
Now you know some of the biggest factors to consider before taking out a loan. Thankfully, lenders offer a range of loan options for those in need of some extra cash flow.
Depending on your situation, we suggest discussing your choices with a lending team over the phone or in person. You might even be able to find an online chat feature if that works better for you.
Take your time, so you don’t rush into a financial decision you wind up regretting. Are you ready for more helpful tips?