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Have you ever found yourself at a point in your life where you need to take out a loan? The vast majority of people see the need for borrowing at one time or another. Sometimes it’s for an emergency, but not always. Consumers and working adults from all walks of life pay for the luxury of using someone else’s money for events and situations of all kinds, including tuition, medical bills, starting a new business, taking a much-needed vacation, and so forth. It’s helpful to know the most common kinds of loans before an emergency hits, or before a circumstance arises in which you need to borrow. Having advance knowledge is a good thing. The following list summarizes the pros and cons of five different methods of borrowing.
Personal
If you have a solid credit history, you can sign your name and fill out an application with a bank or other kind of lender for personal loans. These unsecured contracts only go to people with very good or excellent credit, which is their major downside. Sometimes it takes several business days before the deal is done and you can touch the money with your own hands, so speed is not an advantage here. However, for consumers with good credit, and who don’t mind filling out a lot of paperwork and waiting for a while, this route can be a good one.
Payday
If you’re working, a payday loan can be an ideal way to gain access to money for an emergency of any kind. The main advantage of getting funds this way is that the process is quick and easy. You don’t have to qualify except by showing employment and earnings documents, and the transfer to your bank account usually takes place in a matter of minutes. The only downside is that unemployed folks can’t use this method because it’s restricted to working people.
Mortgage
If you want to purchase a house and can’t do so with cash, you’ll need to sign a mortgage contract with a lender, which is often a bank. Mortgages are great ways to get ownership of property that you can’t afford to pay for up front. Plus, after you make a few payments, your credit scores usually begin to inch up, slowly but surely. The major negative is that contracts are long, typically 30 years, and it’s possible to get locked into an interest rate that is not advantageous.
Auto
Most adults know how these contracts work. You put x amount of money down on a car and finance the rest. For some people, it’s the only way they can purchase a vehicle. For others, the downsides include high interest rates, relatively long repayment periods, and the very real possibility that within a year of purchase, they’ll owe more than their car is worth.
Education
Student loans are often the only way for people to pay for college and grad school. If done through a reputable lender or a government agency, interest rates can be quite low and repayment terms lenient. Even so, it pays to shop around for bargains because rates and terms vary a lot from lender to lender.
