Borrowing money might sound like a difficult task. From late fees to interest rates, loans can be a complex yet useful tool. But before jumping into borrowing money, it’s important to understand loans and how they work.
Loans 101
Before you begin applying for a loan, ask yourself this question: What is a loan? A loan is a form of credit in which you receive money from another person or entity. In return, you agree to repay the money, typically with interest, in the future.
In most cases, the lender will add interest or other charges to your principal amount, which you must pay as well as the original amount. The amount of interest may vary, depending on the lender and other factors, like your credit score. Loans can be closed-ended, where you receive the money in a lump sum and agree to pay the loan back over a specified number of payments with a definite end date. Or they can be open-ended, like a line of credit, where you can borrow, as needed, up to a specific credit limit, without having to reapply every time you draw money.
How Many Types of Loans Are There?
Loans are available for different purposes and may have a variety of features, from personal loans to secured loans and even loans for bad credit. Below are a few common loan features:
Unsecured Loans
Unsecured loans are loans that are not backed by collateral. In other words, you don’t have to pledge something of value as security for repaying the loan. Interest rates may be based on your credit score and credit history. Individuals with bad credit may still be able to obtain unsecured loans. Because those with bad credit scores are considered a higher credit risk, they may be charged higher interest rates for an unsecured loan. Failure to pay back an unsecured loan could result in collection activities and being reported to credit bureaus, which could make it harder to take out a loan in the future.
Many people who borrow may prefer to get an unsecured installment loan versus getting a secured loan. This is because there is no need to provide collateral for an unsecured loan.
Secured Loans
Secured loans, also referred to as collateral loans, require borrowers to provide some sort of collateral to secure the loan. Collateral is something of value that would be forfeited if the borrower defaults. Secured loans may have lower interest rates than unsecured loans. However, when you choose a secured loan, if you fail to pay back some or all of the loan, you potentially could lose the property you have offered as collateral.
Common forms of collateral used for secured loans include houses, automobiles, and other physical assets.
Personal Loans
Many personal loans may also be unsecured loans, meaning you will not have to put up collateral. When you apply for a personal loan, you get to decide how to use the funds, including emergency funds or home repairs. Before applying for a personal loan, review your budget to see how much you are willing to pay for each installment.
Payday Loans
Payday loans are short-term loans that may typically be taken out by individuals with low or bad credit scores. Borrowers typically will have to pay back the loan in full with interest by their next payday. Be aware that, depending on how much you borrow, it may be challenging to pay the loan back with interest on your next payday and still have enough left over to cover your regular expenses. If this happens, payday lenders may allow you to extend the life of the loan, but that typically means you’ll incur more fees.
To avoid additional fees, people might opt to find a payday loan alternative. An example of this would be the loans offered by MaxLend.
Installment Loans – Payday Alternative Loans
Installment loans may be an excellent alternative to payday loans. While installment loans are still short-term, you will typically have a longer repayment period than with a payday loan. This means you pay the loan back in smaller payments, spread over more time. This type of arrangement may allow you to cover your regular expenses while keeping up with your loan payments. You won’t have to worry about paying in full with interest by your next payday when you choose a payday alternative loan.
When it comes to installment loans, there are different types. MaxLend offers online installment loans. These installment loans online can be used for various reasons, from paying for unexpected expenses such as car or home repairs to paying for medical bills for yourself or vet bills for your furry friends. Our loan applications don’t require the reason for the loan. If you opt for direct installment loans, such as those offered by MaxLend, you get your loan directly from the lender with no broker or middleman involved. When looking for unsecured installment loan lenders, you don’t need to look any further than at MaxLend.
Bad Credit Loans
Individuals with bad credit may still be able to get a loan. Bad credit loans may be paid in fixed, regular payments, and borrowers may not have to provide any collateral. Lenders may review your income, your credit history and other factors to make a decision. These factors may also help them determine your interest rate.
Advance Loans
A cash advance loan can be similar to payday loans and other short-term loans with a quick application process and quick funding for those who are approved. Like all loans, be aware of the fees and the interest rate that you’ll be paying and how much time you have to pay the money back.
Cash Loans
Cash loans are another way people may refer to payday loans, alternative payday loans like MaxLend’s small personal installment loans, and any other small-dollar, short-term loan featuring a quick application and funding process. Some lenders may provide the funds in cash, or you may have the funds directly deposited into your bank account.
How Does Taking Out a Loan Work?
Taking out a loan, such as an unsecured installment loan from MaxLend, may include filling out an application, having your credit history or other information checked, and preparing to pay back the funds with accrued interest. Before you begin the process, it’s important that you understand loans and how they work. You are borrowing funds from a lender, but the tricky part may be the repayment process. Keep in mind the loan’s term, interest rate, and your budget before you take out a loan.
For further information to help you understand loans better, please visit our website. We are also available, 24/7, at 877-936-4336 if you have any questions.
Additional reading:
Most Common Reasons People Take Out a Loan
Understanding the Difference Between Fixed and Variable Loans