What Kind of Loans Exist and Which Ones are the Best for You?

In a fix and need some money quickly? You’re not alone. It’s something many of us have been through. Thankfully, there are more ways than ever to get that money you need these days. While you might be able to sell something or find some other way to raise capital, one of the best and most effective ways to raise large sums of money these days is with a loan.

However, simply getting a “loan” isn’t that straightforward. If you’re new to this sort of money-management, you probably don’t know where to start. The reality is that there are so many different types of loans knowing which one is right for you can be a bit confusing. Thankfully, you’re in the right place. In this article, we’re going to look at a number of different loan types so you can have a bit more info on whether they’re right for you, and how much they might end up costing.

Short-term income loans

These sorts of loans are getting more and more popular. You might have seen adverts for them on television or even some stores popping up in your local area. If you need money quickly, they can be an effective way to tide you over until you next get paid. That’s what these loans are designed for. They aren’t really for longer periods of time, as interest rates can be very high.

Obviously, you’ll need to have a job to get a payday loan and your earnings will be checked to determine how much you can borrow. Make sure you pay this sort of loan back as quickly as possible as the fees and rates can be really high, and you could get into a situation of spiralling debt. While you won’t be able to borrow a huge amount with these loans, it could be a quick way to get some useful money. And they’re reasonably easy to qualify for. These loans can be one of the better if you need quick money.

Mortgages

You probably know about mortgages already, but not everyone knows that they’re a type of loan, too. These loans are predominantly for buying houses and normally have payback periods of 25-30 years. You’ll end up paying a lot more than the value of the house in the long run, but there often aren’t really any other options if you want to own your own property, as up-front costs can be huge.

The good news with mortgages is that the rates are very low. That’s because it’s got such a long repayment period and because the risk is relatively low for the lender (they can take your property if they have to). However, mortgages have become slightly harder to get in recent years since the credit crunch. Before then, almost anyone could qualify and you could often get massive multiples of what you earn. Mortgages are one of the more well-known revenue based loan options around.

Nowadays, lenders are a bit more careful. You can generally borrow around 5 times your yearly salary in a mortgage. This can vary a bit for families and other types of borrowers. One important thing to remember with mortgages is that you will still need a deposit. Most lenders these days will need about 5% of the total value of the property. Paying a bigger deposit could get you even better terms.

Traditional bank loans

If you just want a medium amount of money (more than a payday loan but way less than a mortgage), you could simply try a traditional bank loan. These are often overlooked these days with tons of different ways to raise capital, but they could still be viable. These sorts of loans should be seen as medium-term options. They won’t have rates as low as mortgages but should be a bit better than payday loans.

You will have to qualify for this sort of loan, and that isn’t always straightforward. You might need to tell the lender what you need the money for and you will have to show proof you’ve got the means to pay it back (normally a history of your earnings). To improve your chances, you might be able to put something up as collateral (like a vehicle).

Business loans

If you’ve got a business that you need money for, that’s a whole other area of financing. Most of the advice so far has been for individuals rather than businesses. Business loans can work similarly to traditional bank loans and might afford you a reasonable sum with acceptable medium-term rates.

The amount you can borrow and your likelihood of getting accepted will depend on the sort of business you’re running and what your cash flow is like. Lenders generally prefer to give money to established businesses that are doing well enough to pay them back.

Overdraft

You don’t want to use your overdraft to get money unless you have to. You could be charged huge rates. Your overdraft should be a last resort unless you’re absolutely desperate for money, or if you’ve got a 0% fee overdraft.

Credit card

Again, credit cards aren’t a great place to take out money in the long term. The best way to use a credit card is to treat it like a debit card and pay it off each month. The only exception to this is if you can make the most of an interest-free period. Even then, you need to be careful.

Pawn shop loans

If you’ve got an item of value that you don’t need but would still like to keep long-term, you could sell it to a pawn shop. Just make sure you buy it back in time (it’ll cost more) or they’ll be free to sell it on.

Funding clubs

If you’re a business and don’t want to use a traditional loan, you could look at funding clubs as a new innovative way to get capital.

Business investors

If you don’t want to pay loan rates but are happy giving up a portion of the equity in your business, you could try finding a business investor. These types of lenders will look for businesses with great potential, and you’ll have to give up a fair percentage, but you could also get some additional expertise to help your venture thrive, as well as money.