What other types of loans are there?

While pay day loans may be the quickest and easiest way to borrow money, there are a lot of options out there, and depending on your needs, you might want to look at one of the other types of loan. Even if you don’t, it’s worth knowing what different loans are out there, and the advantages of a pay day loan compared to another choice.

Secured Loans

Secured Loans offer some of the best rates of interest as well as some of the highest amounts of money out of any other loan. A secured loan is generally secured against your home, meaning that failing to repay can result in home repossession, and is also why they are sometimes known as ‘homeowner loans’.

Advantages

  • Low rates of interest
  • Large payments
  • Long repayment times

Disadvantages

  • Lengthy application process
  • Home could be repossessed
  • Won’t lend small amounts
  • Requires a home or other valuable asset

Business Loans

Business loans come in many shapes and sizes, so it’s hard to say the specific advantages and disadvantages of them, but generally they have a few similarities. Firstly, of course, they are only given to people who run or are setting up a business. Often they have low rates of interest and high amounts of money, as long as you can prove that your business is a worthwhile investment.

Advantages

  • Low rates of interest
  • Large payments
  • Occasionally free

Disadvantages

  • Requires a business & business plan
  • Lengthy application process
  • Must be used for a specific purpose

Unsecured Loans

Unsecured loans are loans rated entirely on your personal financial situation, which is why they are also known as personal loans. Compared to a secured loan, unsecured loans don’t require security which means lenders are less willing to give them, and they tend to have higher rates of interest for less money.

Advantages

  • No security required
  • Can be spent on anything

Disadvantages

  • High interest rates
  • Lengthy application process
  • Must have good credit history

Asset Finance

Asset financing is a way of borrowing money that lets you buy what you need at the beginning of your loan term and then pay it back over time. This is frequently the way to purchase equipment for businesses, and car loans are another specific example of asset financing. Failure to repay these loans, however, may result in the asset you buy being repossessed.

Advantages

  • Relatively cheap interest rates
  • Exact amount of money you need

Disadvantages

  • Must be used for specific assets
  • Assets may be repossessed

Credit Cards

A credit card is much like a loan in that it is a method of borrowing money to pay back later. There are a variety of credit card deals around, but they mostly follow the same principle: lenders will pay for the items you buy with your card, and you pay them back with interest. Credit cards can be very useful to own if you come across an emergency because it allows you to put off actually spending money.

Advantages

  • Quick access to money in an emergency
  • Builds credit history
  • Lots of credit card deals available

Disadvantages

  • High rates of interest
  • Can result in bad financial situations

Friends and Family

Of course, if borrowing from friends and family is an option it’s often the best one. Unless your family are all cutthroat bankers, they probably won’t charge interest on the money they lend you and they’re unlikely to repossess your home if you can’t repay it as soon as you need to. However, this also relies on having friends and family who can afford to lend.

Advantages

  • No interest rates
  • No repossession
  • Mutual understanding and trust

Disadvantages

  • Requires friend or family to be able to lend
  • Can put friend or family in difficult situation

Pay Day Loans

Pay day loans are also known as short term loans because they are not designed to last long. It is quick and easy to apply for a payday loan, Most Payday Loan and Short Term Loan applicants are now credit checked but they don’t require security, so you can apply even on bad credit without an asset to secure. However, high APR can lead to financial disaster if you don’t repay these on time.

Advantages

  • Instant loan
  • Bad credit loan
  • Unsecured loan

Disadvantages

  • Can lead to bad financial situations
  • Can be too easy to take out
  • Not a cheap loan

Don’t take out a pay day loan unless you know you can pay it back on time. Failure to repay a loan can result in additional expenses and large financial debt.