The Types of Personal Loans
When searching for small loans for urgent expenses, people don’t usually realize that they are looking for personal loans. These small personal loans come in all shapes and forms. Here are some of the most common features that you may come across when dealing with personal loans.
Unsecured and secured loans
The main difference between the two is that the unsecured ones don’t require any collateral. Instead, the lenders are balancing their risk of not insuring their money, by assigning a higher interest rate, a lower ceiling on the loan, and a shorter repayment period. On the other hand, a secured loan requires some form of collateral that the bank can seize if you fail your repayment, which allows the lender to offer you a smaller interest rate, a higher borrowing ceiling, and a longer repayment term.
Fixed-rate and variable rate loans
A fixed-rate loan has the interest rate constant during the loan's life, which helps budget your payments from the beginning and avoid surprises. In the case of variable rates, the interest rate fluctuates with the market. So the initial rate that you got can be subject to change in the future. Because the market can be unpredictable, it’s hard to be certain that your future payments won’t ever change.
Lines of credit
These are typically unsecured loans that can be used for any purpose. A credit line has higher interest rates, yet it does not come close to the credit card rates that are often way higher. The main plus of these loans is the freedom of drawing from the line as much as you need when you need it. So you have total control over how much you owe.
A cash advance is taken against a paycheck or a credit line of yours. It’s a straightforward concept - the amount that was going to be at your disposal at a later time is given to you in advance, in cases when you can’t wait for another day to cover your costs. Besides the interest rate calculated on your advance amount, you will be obliged to pay additional fees upon repaying the debt.
A classic financial service - a repaid loan in a set time period with set chunks of payments. It can serve any personal purpose like a mortgage for a home or a car loan.
Applying and Receiving a Personal Loan: Break-down
The best thing about small loans for urgent expenses is that you can receive them online fairly easily and quickly. Here’s how.
- Step 1: An online questionnaire will be filled out in most cases. You’ll be asked to provide some personal information and the amount of the desired loan and its purpose. Also, you’ll be required to disclose your income level.
- Step 2: A soft credit check will be conducted, which won’t affect your rating. Based on your score and the information you provided in your form, a lender will determine if they want to provide you a loan, how much do they want to lend you, under which terms and rate?
- Step 3: Once your submission has been selected, you will then be put in direct contact with the lender, to finish the process with them. Have all the necessary paperwork handy (driver’s license or passport, proof of residence, utility bills, rent contract, pay stubs, etc.) when you get in touch with the lender.
- Step 4: The lender might conduct a hard credit check at this point when you receive the agreement with their conditions. Take your time to go over every clause thoroughly. Make sure to clarify everything. You don’t want any surprises in the future. Ask questions to have a clear understanding of what deal you are entering into.
- Step 5: Look out for the money to be transferred to you once the agreement is signed. Check your bank account balance the next business day and stay in touch with your lender at all times before and after the money is deposited into your account.
- Step 6: Stay on top of your payments! Be realistic with your income and expenses. Budget your funds, avoid impulsive spending, try cultivating and maintaining positive relationships with your lender. Make use of your loan purposefully.