According to the Small Business Association, SBA, more than 70% of small enterprises in the US have outstanding debts. And while the statistics are not particularly good news, more and more businesses turn to financial lenders for support.
There are many reasons for borrowing money. Some include:
- Pursuing new opportunities
- Expanding current businesses
- Acquiring new assets
- Personal reasons
- Emergencies
Types of Loans Available Today
Before you take up cash from your online lender, you must understand the type of loan you are getting into. Below are the four main types of loans and examples of loans for each category, with help from AlltheBestLoans.com.
1. Fixed-rates loans
As the name suggests, the interest rates for these loans remain constant over the payment period. With the constant rates, it becomes easier to change your budget to suit your payment.
However, in the rare event that the interest rates drop, then you stand to pay a little more.
Examples of fixed-rate loans include car loans, personal loans, and federal student loans.
2. Variable rates loans
Unlike the fixed loans, the variable rates loans have the interest rates changing continually, a condition dictated by the market conditions.
However, there is a limit to which the rates can drop or rise over a certain period. The benefit of this property is that you can enjoy a lower annual percentage rate.
However, if the market lending terms change for the worse, your interest increases. Also, the fluctuations can make it hard to budget for your loan repayments.
Examples of variable rate loans include variable-rate credit cards and mortgages.
3. Secured loans
For a lender to issue a secured loan, you need to provide collateral to back up your repayment claim. The amount of collateral demanded is almost equal to the amount of money borrowed.
Such items could range from machinery to vehicles and homes. The lending organization can then seize your property, which you put up as collateral in case you default payment.
These types of loans are low risk on the lender’s end. Consequently, you enjoy lower interest rates. Also, depending on the value of your collateral, you can borrow larger sums of money.
On the downside, you could lose your property if you are unable to repay your loan.
Some of these secured loans include mortgages and car loans, and beginner’s credit cards with no records to ascertain their credit scores.
4. Unsecured loans
If you have used an online lending company, those are the kind of unsecured loans we are talking about. They do not ask for any collateral for the borrowed money. All you need is a good explanation of what you will be using the money for, or a promise of payment. This is where your credit scores work for, or against you.
Since these are high-risk loans, the interest rates are quite high. But on the other hand, as a borrower, you do not risk losing any of your property, since you did not offer it up as collateral.
Examples of unsecured loans include student loans, taken for paying school fees, personal loans, and credit card loans for people with good credit scores.
Taking up a loan to fix a current situation is not uncommon. However, you must understand the type of loan you take up first. Find out more about the hidden charges and the payment duration. Ask questions, and only sign the document once you are sure you understand.