With inflation and unemployment on the rise in the aftermath of the COVID-19 pandemic, most people are struggling to get by financially. Perhaps your dreams of buying a house or establishing a business have been put on hold, and you’re unsure when you’ll be able to save enough money to make a big purchase.
A loan enables you to borrow money in exchange for future repayment of the principal amount under certain conditions. Since there are several loan options you can choose from, it’s crucial to determine what a specific loan entails and whether it will fulfill your financial needs. Keep reading as we explain different types of loans to help you through the process.
1. Secured Personal Loans
A secured personal loan requires the borrower to offer up some collateral in return for getting the money, such as a certificate of deposit or a car. These loans typically have a low-interest rate because there’s less risk of the lender not getting their money back.
You can save money on interest with a secured loan if you’re confident about putting an asset on the line and paying your debt back on time. However, remember that if you default on the loan payment, the lender has the right to seize your savings or car.
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2. Unsecured Personal Loans
Whether consolidating debt or paying for wedding expenses, you can use personal loans for various reasons. Personal loans also come in the form of unsecured loans, which don’t need you to put collateral like a car or home on the line in the event that you default on your loans. If you hold high-interest credit card debt, paying off your debt sooner with an unsecured personal loan is the way to go.
You can apply for a loan for the amount you owe on your credit cards, and once you’re approved for the total amount, you can use the loan funds to pay the money rather than making monthly payments. A personal loan might offer a lower interest rate than your credit card, leading to more significant savings. These loans are a good choice for major financial purchases like medical bills, moving expenses, a home improvement project, etc.
3. Title Loans
Title loans are a type of secured personal loan whose amount can range anywhere from $5,500 to $100. For example, if you own a car, you can borrow a percentage of its value depending on your lender’s terms and conditions. Typically, you have to repay the amount within 15 to 30 days, and if you fail to do so, your asset will be seized. The asset is only returned once you pay back the full amount of the loan and any additional fees.
It’s recommended to opt for a title loan in an emergency where you need fast cash and don’t have any other options. Ensure that you pay back your debt on time; otherwise, you will continue to rack up fees while the lender also holds onto your vehicle or any other valuable possession.
4. Credit Card Advances
Owning a credit card comes with the benefit of availing a cash advance borrowed against your card’s available balance. This short-term loan provides you with cash on hand to purchase something you need. However, a credit card advance comes with additional fees and a high-interest rate.
You won’t have the same interest rate on this advance as is applied to a standard purchase, even though it’s your personal credit card. As soon as you withdraw the money, you might accumulate interest and have to pay a processing fee.
5. Student Loans
This type of loan is meant to pay for fees, living expenses, and tuition at accredited schools. Unfortunately, student loans can’t fund specific education programs like informal classes or coding boot camps. A student loan can either be private, provincial or federal.
You have to fill out the form and work with your school’s financial aid department to acquire a federal student loan. While these loans charge a slightly higher interest rate, they have several benefits and protections. In contrast, private student loans offer better interest rates if your credit is good but have fewer benefits and protections.
6. Payday Loans
Payday loans are short-term loans that need to be paid back by your next pay cheque. The good thing is that you don’t require good credit to qualify for one. Still, you must be very careful because a payday loan can often be predatory.
They come with extremely high finance fees that can increase exponentially in some cases. And while you have the choice to roll over your loan to the next pay cheque if you can’t pay back your debt in time, you’ll keep stacking up more fees. Many people get trapped in such debt obligations and have to pay back an amount higher than the originally borrowed one.
7. Pawn Shop Loans
Another fast-cash borrowing option with no credit check is a pawn shop loan, where you take a valuable item like an electronic or a piece of jewelry to a pawn shop and borrow money based on its price. When you pay back your loan in full, you will get your pawned item back. In the case that you don’t pay back the borrowed amount in time, the pawn shop has the right to sell your items. You might also incur fees and additional costs for insurance, storage, or renewing your loan term.
These loans can have high-interest rates, and their terms vary depending on the shop you go to. However, some provinces have taken action to regulate this industry, and a pawn shop loan can be of great help if you don’t qualify for a traditional personal loan. Additionally, they are less risky than a title or payday loan.
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Sometimes, saving money is just not possible, and you have to turn to other alternatives, like a loan. Before you borrow money, set a budget so you can determine when and how you’ll return the money every month. There are also several types of loans available, so it’s essential that you do your research and pick the one that best suits your financial needs.
Each short- or long-term loan agreement depends on factors like the loan interest rate, the required credit score, and repayment terms. Note that some loans might require collateral, so ensure that you can sort out all your monetary affairs by the time you have to repay the borrowed amount and keep your possessions.
Here at Insurdinary, we make finding a loan for bad credit simple. Our carefully selected partner network of online lenders is ready for you, 24/7. By answering a few simple questions, the technology on our website connects you with lenders who are prepared and experienced in working with loans specifically geared to those with bad credit.