Credit is one of the backbones of the economy. By borrowing money, individuals are able to afford purchases they couldn’t on their own base salaries, such as a house or car.
MaxLend loans, personal loans, bank loans and loans from other sources can also help people advance in life in ways they could not have or would have had difficulty doing prior to the establishment of the practice of loaning money. For instance, loans enable people who lack enough personal funds or a backer (like parents) to obtain higher education and start businesses. Borrowing money has become a commonplace practice. Credit card debt, mortgages and student loans are seen as normal. For instance, according to Education Data Initiative, the national student loan debt is over $1.7 trillion. While debt can pose a problem if in excessive amounts or if an individual falls behind on payments, it can also serve as a useful tool if managed responsibly. An understanding of the types of loans available can help individuals make informed financial decisions.
1. Home Equity Loans
When individuals take out a home equity loan, they are using their home’s equity as collateral. An appraiser determines how much the property is worth, and the owner can borrow a certain amount of money based on that value. The homeowner then pays back the amount, with a fixed interest, over time. Home equity loans are also sometimes called second mortgages. People often take them out to cover educational costs, home renovations and debt consolidation.
2. Debt Consolidation Loans
When individuals have a large amount of debt from numerous sources, it can be overwhelming to keep track of all the payments and interest rates. Debt consolidation allows them to combine all of these debts into one large one, making them easier to manage and may result in a lower overall interest rate. A debt consolidation loan is a lump loan used to pay existing debt. This way, all of the debts are converted to this single loan that can be paid off over time.
3. Payday Loans
Payday loans are different in that they are short-term loans paid out in cash. They are useful for tiding people who need money immediately over until the next paycheck, but they come with high interest rates. The deadlines to pay off these loans are usually the next payday or close to it.
4. Credit-Builder Loans
Credit-builder loans are also different from other kinds of loans because of their purpose. Unlike other types, the main goal is not to obtain needed money, but to raise an individual’s credit score. The way credit-builder loans typically work is the loaned money stays in a bank account until the individual finishes paying it off. Once all of the payments are made, the person can then access the funds. This allows him or her to accrue credit while building up savings. It is useful for younger individuals just starting out who may not have a credit score and thus can’t qualify for certain loans.
While these are not the only kinds of loans out there, they are important to know about. The type of loan a person should take out depends largely on what it is for and the individual’s circumstances.