4 Main Types of Personal Loans – Which One to Choose?

By Akshay Sharma November 20, 2020 Finance

Whatever you may need a loan for, it’s always a good idea to think ahead. Borrowing money can be used for many purposes – from funding a business, financing a wedding, pay medical bills, to buying furniture for your home. With all the different type of loans out there, which one should you choose? Below, you’ll find the most common types of loans to use for your personal needs. At some point in our lives, people make investments. A personal loan is always a good idea, but are you qualified in obtaining one? If you have a great credit score, some lenders might approve your loan within 24 hours. But depending on your needs, you might choose other ways to pay for your investments. Let’s take a look at the below guide to see how many types of loans are out there, and which one will best suit your needs.

1. Personal loans

The competition among lenders is high, so make sure to do your research before. You’re trying to choose the best lender on the market, so always look for one with easy eligibility criteria. This will speed up the application and approval process. Also, always check and compare lenders: the interest rates vary and it’s an important aspect when searching for a loan. Loan interest rates are set by lenders based on many factors, such as:

Credit score
Repayment ability
Current financial situation
Loan term
Down payment
Loan type
Interest rate type

Now you now what’s there left to do to increase your chances to obtain a load. Each one of us’ situation is different, so you can explore the internet to see what you can expect. Understanding these factors will help you choose the right type of loan. You won’t have to look for bank for too long, as there are quite a lot of branches in town. For example, the vast majority of Canadians use at least one bank for a wide variety of reasons. There are many top banking systems in Canada that support people in times of financial stress. The common services that commercial banks offer is:

Chequing accounts Canada
Credit cards
Loans & mortgages
Insurance
Safe deposit boxes
Wealth management services
Business loans
Personal loans

Also, there are online banks that doesn’t have physical branches, but they operate great deals online. Online banks increased their number significantly over the last years, as technology evolved. So, most customers are performing daily banking from their personal devices, at home.

2. Credit cards

Many people take out personal loans with credit cards. If the loan is paid back within the set time, no interest rates will be extra charged. If the debt remains unpaid, or it’s significantly delayed, interest is charged monthly until the amount of money borrowed is paid off. If you want to make a significant purchase or pay your bills, credit cards offer convenience and the possibility to save money, if you’re earning back what you spend in rewards. Credit cards and debit cards look similar. However, they work differently. If you’re new to using a credit card, there are some factors you need to consider, including:

Carrying money on a credit card can lead to interest charges
Credit cards have a limit when making purchases, then repay it at a later time
Some credit cards let you earn rewards on acquisitions (points, cash, discounts)
It’s essential to carefully read the information about promotional offers that credit cards offer

Credit cards can be useful, if used correctly. Most people use it to pay their bills. The point is to use the money only for emergencies to maintain a goo credit. To avoid charges, it’s important to pay your credit card bill each month, at the set date.

3. Home-equity loans

People can borrow money by using their home’s equity. If they own the house and the mortgage is paid off, the chances are that they can borrow more money from banks. Home-equity loan has one big important advantage: the interest rate charged is far low than when getting a personal loan. However, the biggest downside is that the house is the warranty for the loan. So, the borrower can lose the home is case they don’t pay the loan. There are many reasons why people use home-equity loans, but they’re often used to upgrade their home.

4. Small business loans

Small business loans are offered by most banks. These loans are generally wanted by people who want to open a business, or expand an existing one. Loans are essential when it comes to a business development. Sometimes, it can be difficult to go through the process of obtaining the loan, due to the amount of the paperwork you should prepare in order to be approved. No matter the stage of your business, some extra cash is always needed. You can obtain a business loan from a wide variety of alternative or traditional lenders. Oftentimes, business people need small business loans to expand their business, hire new staff, or improve their marketing efforts. If you’re among those who want to expand their business, a small business loan might come in handy.

First, you’ll need to come up with a business plan, and decide what type of loan you want, how much money you need to borrow, etc. For example, loans that can finance your daily activities and operations might come up with different requirements than a loan to get a property. But if you create a business plan, you’ll make it easier for lenders to finance you. Lenders will take into account your business credit score. This way, they’ll ensure that you’re able to repay the loan. Lenders will usually evaluate the following:

Cash flow
Credit score
Credit history
Experience in your domain

To ensure that you easily obtain the loan, get prepared with any piece of document needed. Banks will reject your application if they can’t see proof of your lending rank.

However, the best way to ensure you can obtain a loan is to check your credit score and ensure that it’s stable.