Sometimes in life, there may be a need for cash that just might arise from nowhere.
That’s why, it’s always a good idea to have some basic knowledge on how to get a loan. That is if you really need one.
So what is a loan? A loan is a type of debt, which is granted by a lender to a borrower.
Loans are typically used to purchase property or goods. They can also be used to start a business, pay for education expenses, fund government projects, etc.
The word “loan” comes from the Latin word “laudare”, which means “to praise”. Today, the most common loans are payday loans (Especially in Canada and US) and loans that you can get from your local banks. The reason for their popularity is these lenders have to be licensed.
Especially in British Columbia, Canada.
Overall, there are two main types of loans, secured and unsecured.
Secured Loans
Secured loans is a type of loan where the borrower puts a valuable asset as collateral to secure repayment. Something like a car or an existing mortgage.
These types of loans also rely on the borrower putting up an asset as collateral for their loan, which can be sold if they do not repay the loan. Unsecured loans do not require collateral and may provide higher limits than secured loans.
This is an emerging type of financing that has been steadily replacing traditional loans for major purchases. Secured loans generally require less documentation than traditional loans, and they often provide more favorable interest rates. Which is always a plus for the borrower.
In addition, borrowers often find secured loans to be more convenient than traditional unsecured lines of credit because they can be repaid easily based on monthly payments, which are capped at the amount owed on the underlying asset.
Unsecured Loans
Unsecured loans are typically given out without any collateral from the borrower. Borrowers do not need to give anything up in order to take out this type of loan. They are typically given out with a lower interest rate than secured loans, making them more appealing to borrowers that need a quick cash solution.
These are the two main types but there can also be variations.
The other two we’d like to share are the most popular type of loans that people get.
Payday Loans
The payday loan is a small, short-term, high interest loan that is typically due in the borrower’s next payday after they receive it.
Payday lenders will often use a credit check or bank statements to assess a potential borrower’s ability to repay the loan. If they feel confident lending to the individual, they may provide the funds requested in person with cash or by using an electronic transfer. If not, they will typically offer an alternate way of obtaining money such as through a credit card advance from their own bank.
Bank Loan
A bank loan is a form of financing that a bank offers to its customer. This type of financing is often used for large or expensive purchases like buying a house, starting up a business, or making major improvements to one’s property.
A bank loan is typically structured as an interest bearing transaction in which the borrower usually has the option to make monthly payments over a set period of time at either constant or variable interest rates. The funds can be transferred directly into the borrower’s checking account.
The two types of bank loans are secured and unsecured loans. Secured loans are backed by collateral guaranteeing repayment should the borrower default on their loan obligations; unsecured loans do not require collateral and are less risky for both parties.
So at the end of the day, make sure you do your research before getting a loan. The more you know, the better off you may be financially.