The Three Types of Loans Explained
There are three main types of loan, which include unsecured, short-term, and installment.
All of them will be explained herein.
An unsecured loan is a loan where nothing is put on the line for collateral. Some loans require people to put up a home or a car for collateral. An unsecured loan is all about trust. The lender is trusting that the borrower will pay the loan back according to the agreement.
If the borrower does not pay the loan back according to the agreement, the lender has the right to take the borrower to court. This process can result in the borrower having the money taken out of his/her paycheck every week. This can also result in the borrower having a negative item on his/her credit report. This can hurt the borrower a lot because he/she will not be able to get a loan until the negative item is removed from the credit report.
A short-term loan is a loan that must be paid back between one week and one month; this depends on the lender. The lender can be a family member, friend, neighbor, pawn shop, bank, or a payday loan service. Pawn shops, banks, and payday loan services expect the loan to be paid back within a week. These are all usually called payday loans. When borrowing money from family or friends, they usually allow the loan to be paid within two to four weeks.
A short-term loan generally ranges from five hundred dollars to one thousand dollars. This all depends on the individual. When it comes to banks or payday loan services, they need to know that the borrower has a bank account, a job, and some money left over after all the bills are paid in full. Friends and family members usually need a level of trust when giving out a short-term loan.
An installment loan is a loan that has a specific number of payments of an equal amount. These payments usually have to be paid by a specific date, too. This type of loan would include a large sum of money. This could be anywhere from five to thirty thousand dollars; many student loan services use this method.
A lot of people like using this method because of the way interest is established within the loan. The interest is not great, and it is included within the periodical payments. This means people do not have to worry about paying extra for interest. These kinds of loans do not come with any hidden fees.
The three loans listed herein are all safe. Some are better than other depending on the situation. The best approach to take would be to execute the loan that best fits the present problem. Many people have also found success by speaking with accountants and the like. These financial individuals will be able to give good advice regarding which loan to take in a specific circumstance. Most of these financial individuals have experimented with all three loans.
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