There are many different types of loans out there for a whole variety of purposes and many of them come with their own unique set of pros and cons.
Today, we’re going to review some of the more popular types of loans out there for personal use. We won’t be going over the “big” loans, like mortgages or car loans since they are quite obvious in their use.
Let’s go ahead and get started!
Cash Advances
These are short-term loans that you take out against your credit card. They’re pretty easy to use, as instead of making a purchase with your credit card you take this advance to a bank or ATM and receive cash.
From there, you can use the cash for whatever you need.
Pros
- Incredibly fast, you’re likely to be approved in as little as two days, ideal for emergencies
- Easy to qualify for, incredibly low amount of qualifications
Cons
- Very high fees on the advance
- Restricted in some states and areas
- Incredibly high-interest rates. Begins accumulating as soon as cash is withdrawn
- Can negatively affect credit score
Best Use:
If you’re in an emergency and need cash immediately. Other than that, best to stay away.
Payday Loans
Another short-term and high-interest loan, these loans are used to cover you from one paycheck to the next one. While there are plenty of physical locations to receive payday loans, you can also search for payday loans online. They are mainly for people that are living paycheck to paycheck or those who find themselves in dire straits.
Typically, payday loans are between $500-1000 and have incredibly high-interest rates. More and more states are clamping down on payday loans, as there are just over 30 that allow them now.
Pros
- Able to receive the loan on the same day, incredibly fast service
- Ideal for emergencies
Cons
- Unbelievably high-interest rates
- Often operate without restrictions
- Not available in many areas
Best Use:
Once again, if you find yourself in an emergency then you should look for a payday loan. Also, it’s best to use them once and never use them again.
Personal Loans
By far the broadest loan we have covered so far, personal loans are exactly what they sound like. They are used to cover personal expenses and don’t have a set purpose or restriction on them. You can use a personal loan to pay off credit card debt or hire someone to repair your living room window.
As compared to the two loans above, they are a bit harder to get and the lender often does extensive background and credit checks to assess the risk. If you’ve got a job, have a good credit score, and pay your bills on a regular basis then you shouldn’t have an issue acquiring a personal loan.
Pros
- Lower interest rates, often borrowing from a more reputable lender such as a bank
- Can be used to cover just about anything in your personal life
- Approval is quick, but not immediate
- Loan amount can vary greatly
Cons
- Extensive background and credit check
- Approval can take time, depending on the institution
- Not available for those with poor credit history
Best Use:
This is your “everyman” loan. As stated above, if you’ve got a job, solid credit history, and pay your bills then you’re almost guaranteed to be eligible. They can be used for just about anything and are quite flexible, so let your imagination run wild.
Debt Consolidation Loans
These type of loans are part of a larger financial strategy. You take multiple debts and bills and put them together into one bill that can be paid off via loan or mortgage program.
Typically, this type of loan is ideal for those with outstanding credit card debt. You can reduce your monthly payment and interest rate, helping you pay off your debt quicker. It’s a way to lessen your debt headache by putting everything in one place. You can pay it all off at the same time.
It does take a bit of discipline, spending less on the credit card and not looking about how to increase your spending limit.
You might also see these types of loans titled bill or credit consolidation. While this can be done without taking out a loan, the most conventional and popular way is to take out a loan in order to consolidate your debt.
Pros
- Helps you put all your bills into one, simple place
- Can help improve your credit score over time
Cons
- Not to be confused with debt forgiveness, you still have your debt!
- You must drastically alter your spending habits
- Can take up to five years
Best Use:
If you’re someone who has a lot of debt spread out across different credit cards or places, then this loan is for you. Also, if you’re serious about changing your spending habits then this is a great and simple option.