There are so many variables to consider when looking at types of loans; it can be quite overwhelming. That’s why we’ve put together this guide on the different types of loans, to help you determine the most appropriate loan for your current needs.
Secured vs. Unsecured Loans
When it comes to taking out larger loans, some of them require you to offer an asset as an added measure of security for the lender. So, if you’re unable to pay back the loan amount, the lender can sell the secured asset to make up for some (or all) of the loan’s value. It’s just an added safety for them. This can come in the form of property, a vehicle or a cash deposit.
Many different types of car loans, for example, use the car itself as a security.
The main differences between secured and unsecured loans that you’ll notice will be the loan amount and interest rate. By securing a loan, lenders are more likely to provide a higher loan amount or a lower interest, reducing your total repayment cost.
Fixed Rate vs. Variable Rate
When you pay back most types of loans, you’ll have to pay back the original amount as well as interest. This interest is paid during your scheduled repayments and is dependent on the interest rate. This can either be a fixed or variable rate.
Fixed rates will stay the same over the repayment period. This makes them easier to budget for long term. Variable rates, on the other hand, will change along with market interest rates. Choosing a fixed rate vs. a variable rate is a tricky decision, as interest rates can either climb or decrease over time.
Home Loan vs. Mortgage
Well, there isn’t really a choice between the two. To buy a home, you’ll need both a home loan and a mortgage. A home loan is the amount you borrow from a lender to pay for a new property. But because the amount is so high, the loan requires the borrower to sign a legal agreement to pay it back: a mortgage.
By signing a mortgage, your lender takes the title of the property until you completely pay off the loan. Different types of home loans have different prerequisites like the deposit amount and interest rate.
Personal vs. Business Loans
As an individual, you’re able to take out personal loans to pay for things that come up. A lender will usually want to see your income and credit score – just so they can determine if you can pay it back or not.
Business loans can be a little harder to set up, but they offer bigger incentives. The amount you borrow can be higher and have a lower interest rate – especially if you secure a business asset like a work truck. But if you need a loan for your business, it doesn’t have to be a ‘business’ loan. You can use personal loans for your business too, but not the other way around.
The most common types of personal loans are small loans that offer a fast approval and payment and require minimal documentation. To learn more about small loans, check out our article on Understanding Different Types of Small Loans.
If you’re after a fast cash loan, you can apply for a short-term loan with Cigno today.