There are different types of borrowing options and it can be difficult to decide which one is best for you. Study different loan plans to choose the one that meets your borrowing needs. When borrowing a loan, you have to take into account your future income potential, other debts and major expenses planned for the future. Lenders like banks offer different types of secured and unsecured loans. Sometimes it is better to borrow secured loans while at other times unsecured loans work best.
Various Borrowing Options
There are many ways to borrow the money you need. A bank overdraft is an excellent solution if you need only a small amount of money for a short term. There is no restriction how you use this amount. You can borrow within your overdraft limit. Banks charge variable interest rate on overdraft. The facility of overdraft can be withdrawn or reduced by the bank without prior notice. When you need a larger sum of money for a longer period, it is better to borrow a loan from the bank. There are other organisations like building societies that lend loans to borrowers.
You can apply for secured or unsecured loans from these lenders. Borrowing money using your credit card is suitable when you need small amounts of money to pay for goods and services. You can use store cards to buy daily need items. Peer to peer loans and credit unions are other options to borrow money. If you have a secure job and can provide proof of salary, you can borrow a payday loan. However, use this option only when you have exhausted all other borrowing options.
This type of loan is backed by collateral which can be one of your assets like home, car, business asset, money, livestock, or any other asset that has a value in the market. You need to borrow this type of loan after careful consideration. If you fail to repay your debt on time, the lender will take possession of the asset that you pledged as collateral. For example, when you fail to repay the home mortgage, the bank will foreclose and resell the home.
It is important to know that if the lender is unable to recover the amount you owe to it even after selling the collateral, you will remain under loan default. You remain liable to repay the remaining amount to the lender. The advantage of this loan is that you can borrow any sum of money provided you place an asset of same or higher value.
You do not have to pledge any collateral to borrow this loan. A lender will give you loan based only on your promise to repay. It means the lender cannot siege your property. Student loan, personal loan, renovation loan, overdraft, charge card and credit card are some of the examples of unsecured loans. You can borrow an unsecured loan only if you can show proof of solid income. You must have an excellent credit history as well. Only small amounts can be borrowed this way because the lender does not have any collateral to recover the money. Unsecured loans generally have fixed interest rate unless there is a promotional rate offer.
Before borrowing any money from a lender, you have to ask several questions to yourself.
- What type of loan is best for you?
- Which loan offers you the lowest interest rate?
- Are you ready to pledge an asset to borrow a secured loan?
- Are you ready to lose an asset if you fail to repay the debt?
- Will you earn sufficient income in the future to clear your debt?
A loan is borrowed for personal or business needs. In case of a commercial loan, the asset you buy using the borrowed money can help you earn an income. On the other hand, a home purchased with a mortgage does not bring any income unless you rent or sell the property. It is a good idea to compare various loan offers from different lenders.
Check interest rates and other details to determine which lender is offering the best deal. You can take help of a loan consultant if you are unable to determine the best loan offer on your own. Read terms and conditions of a loan plan carefully before signing on the dotted lines. Do not borrow based only on the lowest interest rate, check other details as well.