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.
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 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.
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.
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 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.
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.
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.
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 interest rates that you’ll be paying and how much time you have to pay the money back.
Cash loans are another way people may refer to payday loans, alternative payday loans like 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 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.
The content on this site is for informational purposes only and is not professional financial advice. MaxLend does not assume responsibility for the information given. All information should be weighed against your own abilities and circumstances and applied accordingly. It is up to readers to determine if this information is safe and suitable for their own situations.
MaxLend, is a sovereign enterprise, an economic development arm, and instrumentality of, and wholly-owned and controlled by, the Mandan, Hidatsa, and Arikara Nation, a federally-recognized sovereign American Indian Tribe. (the “Tribe”). This means that MaxLend’s loan products are provided by a sovereign government and the proceeds of our business fund governmental services for Tribe citizens. This also means that MaxLend is not subject to suit or service of process. Rather, MaxLend is regulated by the Tribe. If you do business with MaxLend, your potential forums for dispute resolution will be limited to those available under Tribal law and your loan agreement. As more specifically set forth in MaxLend’s contracts, these forums include an informal but affordable and efficient Tribal dispute resolution, or individual arbitration before a neutral arbitrator. Otherwise, MaxLend is not subject to suit or service of process. Nothing in this website is intended to waive or otherwise prejudice MaxLend’s entitlement to these protections. Neither MaxLend nor the Tribe has waived its sovereign immunity in connection with any claims relative to the use of this website. If you are not comfortable doing business with sovereign instrumentality that cannot be sued in court, you should discontinue the use of this website.