Almost everyone in their life encounters a situation when they need financial assistance to deal with unexpected and unfortunate events which require immediate money. Incapability to tackle these situations; such as medical expenses, child fees, car repair, accident and so on can put you under great stress and anxiety. Fortunately, to soothe you there is a large number of financial institutions and lenders who are ready to provide you with financial assistance if they find assurance of repayment. To choose appropriate lender and the ideal loan for you, you need to know about the several different forms of financial assistance or loans provided by the lenders:
The various kinds of financial assistance are:
These are the loans secured against some asset you own which act as a security against the loan amount. The secured asset is known as collateral whose value needs to be equal or greater than the loan amount. Usually, your home is used as collateral and sometimes, other assets too, like your car if the loan amount is low. These loans involve low risk to lenders as if you fail to repay they seize your asset and sell it to get back the loan amount. The interest rate involved is usually low and the better your credit rating the more power you have to bargain for lower interest rates, loan amount and repayment period. Some of the examples of secured loans are vehicle loans, mortgages, home equity loans and home equity lines of credit.
These loans don’t involve any collateral as security against the loan amount; as a result they involve a higher risk for the lenders and lower risk for the borrower. The loan approval and amount is based on the borrower’s credit history and other attributes like income, assets and debts at the time of application. Due to high risk for the lender, they charge much higher rates of interest. Some of the examples of unsecured loans are personal loans, personal lines of credit, student loans and credit cards.
Short term loans:
These are the small cash loans that are taken out over a shorter period of time and are usually repaid by your next pay day. Basically, the loan amount is secured against your next pay. These loans are fast and easily available to the borrower as it don’t involve any credit check, so anyone, even someone with poor credit score can opt for these loans. It involves lower risk for borrowers as it doesn’t involve any collateral. Some examples of short term loans are payday loans and cash advances.
Author Bio: The guest post was contributed by Alicia, financial guest blogger from Manchester, UK. Find out more about her finance related blogs @financeport.