For thousands of years, people have been lending and borrowing money. Today, we call these financial tools loans. Over time loans have evolved and now there are a wide variety of options based on what you need to purchase or how you need to use the funds.
Let’s explore some of the options and how requirements differ from loan to loan.
Personal Installment Loans
In the U.S., A recent CareerBuilder report found that 78% of full-time workers in the U.S. live paycheck to paycheck. That means they have less than $500 in the bank for savings and unexpected expenses. When you need a relatively small amount of cash quickly for a vehicle repair or other expense, one of the best financial tools may be a personal installment loan.
It’s a short-term loan that’s repaid in monthly installments. Because of the fixed payments, installment loans are an alternative to expensive payday loans. Another benefit is you can get personal installment loans online and be approved in a matter of days.
The interest fees do tend to be higher compared to traditional bank loans, but the eligibility requirements are much more lenient. Essentially, as long as you can prove you’re employed, have a bank account and social security number that’s all you need.
Debt Consolidation Loans
A loan is a form of debt. Ironically, there are loans for paying off debt. This is advantageous when you have multiple debts, particularly ones with high interest rates. One common type of debt consolidation loan is a credit card. Credit cards are used so often on a daily basis people forget it’s actually a loan. The banking institution that issued the credit card is lending the funds to cover the cost of the purchase and you’re expected to repay it.
But it’s possible to get credit cards with low or no interest rate introductory periods and transfer debts to the card to reduce the cost. Personal loans can also be used to consolidate debt and lower monthly payments.
Keep in mind a debt consolidation loan may be denied because lenders see it as a significant risk. You’ll either have to have collateral as security and/or a good credit score to secure this kind of loan and make debt more manageable.
Auto Loan
Few people have the cash on hand to pay for a car, even if it’s an economic model. Auto loans are designed expressly for purchasing a vehicle. They’re offered through traditional banks, credit unions and car dealerships. Lenders will primarily look at your credit score and income to decide whether or not you can get an auto loan and what the maximum amount will be.
In some cases, they’ll also need to know what type of vehicle you plan to purchase. The good news the requirements aren’t extremely stringent for one reason – the vehicle is collateral for the lender. If you fail to make your payments the lender can repossess the vehicle as way as to recoup the cost of the loan.
Home Loan
Even fewer people can afford to buy a home with cash. Not surprisingly, there’s a loan for that. Home loans, also known as mortgage loans, are used to purchase dwellings. Getting a home loan is a lengthy process that can take weeks. In almost all circumstances, you’ll need to have at least 3% of the purchase price saved for a down payment in order to qualify for the loan.
Lenders will scrutinize your credit score, income and debts to determine if you’re eligible for the loan. The home will also have to appraise for a value that’s at least as much as the loan or you’ll have to pay the difference.
Condo Loan
A condo loan is a type of home loan that’s used to purchase a condominium. It’s similar to a traditional home loan, however, there are additional requirements because a condominium is in a shared building. The primary differences lie in getting the building approved by the lender.
Many lenders have requirements for how much the building co-op has in cash reserves, how many units are occupied and the renter-to-owner ratio. Even if you have perfect credit and cash for a down payment you still may not be approved because the lender thinks the condominium building as a whole is too risky.
Refinance Loan
If you already own a home and have a mortgage you may want to consider a refinance loan. With this loan, you are basically reestablishing a mortgage in order to take advantage of lower interest rates that decrease the monthly payments and overall cost of the loan over its lifetime. The approval process is fairly similar to a home loan. You’ll have to apply and get a home appraisal.
An underwriter will review the application and additional information to determine the conditions of the loan, including the new interest rate.
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