You could have many reasons for wanting to take out a loan. You might want to buy a house, a car, or even a new washing machine. Whatever your reasoning for taking these steps, you need to make sure it’s the right choice for you first. If the purchase can’t wait and you know 100% that you’ll be able to pay it back, go ahead and decide which loan is the one for you:
An Open Ended Loan
If you hear the term ‘open ended loan’, it refers to a loan that you can borrow over and over again. Simply pay off your balance, and you can use it again whenever you like. This type of loan is used in the form of credit cards. Credit cards can be dangerous though, so make sure you know what you’re doing before you take one out.
A Closed Ended Loan
Mortgage loans, auto loans, and student loans are all kinds of a closed ended loan. They refer to a loan where you pay off the balance, and cannot borrow the money again as you would with an open ended loan. If you wanted to borrow another closed ended loan, you’d need to apply all over again.
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A Secured Loan
If you want to take out a secured loan, you need to put down collateral for it. This could be in the form of your house, or another valued possession. Before you can take out a secured loan, it’s essential that you know you can pay the loan back, or you could risk losing something very important to you. You may also need to have your asset appraised before you can put it down as collateral.
An Unsecured Loan
An unsecured loan does not demand collateral, but they can be very hard to get. Not only that, their interest rates can be a lot higher than usual. They rely on your credit history to work out whether you’re suitable or not.
Pay Day Loan
A pay day loan should only be taken out in an emergency, and only if you know for sure you’ll be able to pay it back. As you get the loan in your bank so fast, the interest rates can be high. If you don’t pay your loan back on time, you could end up in way more debt than you imagined. A company like Money3 could give you advice on the best thing to do when it comes to pay day loans.
A Conventional Loan
A conventional loan is another term sometimes used for a mortgage. If you hear this term, it more than likely refers to a mortgage loan.
After looking at these loan definitions, you can hopefully now decide which one is right for you. Make sure you weigh up the pros and cons of each option carefully before you decide. If your purchase can wait, then don’t take out a loan. If there’s a chance you won’t be able to pay the loan back, don’t take out the loan. Be sensible!