What Kind of Loan Should You Use for What Purpose?


There are many types of loans that have different purposes and qualifying criteria. Determine your precise needs for borrowing a loan and select the right one for you.

Title Loans

A car title loan is money that is borrowed using your car title as collateral. Missing a few payments could result in the revocation of your loan and the seizure of your car. Since having a car is a necessity, car owners are encouraged to borrow title loans only for emergencies. This type of loan is recommended to borrowers who are secure in their ability to make repayments correctly.

Hard Loan

A hard money loan is a type of secured loan that is backed by real property. A hard money lender is often an individual investor or private company that needs collateral to use as solid protection against fraud. The “hard” part of this loan is the reality that any asset, whether it’s a car, home or boat, can be seized if the loan is not repaid correctly. In contrast, a soft loan is typically unsecured with fewer rules and restrictions to follow.

Payday Loan

Everyone has heard of payday loans, but not everyone should use them. Payday loans are mainly used to cover short-term emergencies, such as overdue rent, late car payments or utility bills. There are very few good reasons to borrow this type of loan since the interest rates are so high. Paying off overdue student loans or medical bills is not a good reason either. Some lenders and healthcare organizations are lenient in giving their clients enough time to pay off expensive bills.

Personal Loan

A personal loan can be used for any personal need. It is a lump sum payment that must be paid back in monthly installments during a term, which may last for several months or years. The most common uses for this loan include paying off credit card debts, auto repairs, medical bills, vacations and overdue rent payments.

Home Equity Loan

A home equity loan is the process of borrowing equity from the home to use as collateral. Your home’s current value determines the loan’s amount, and most homeowners are allowed to borrow an amount that nearly equals its total value. Since this loan amount can be very high, it’s mainly used for significant expenses like medical bills or car purchases.

It is easy for financial consumers to get confused about the various types of loans available to them. Some loans are more suitable for making long-term repayments while others are less suitable for paying major expenses. It is important to make sure that you’re obtaining the most effective loan for your needs.

Lizzie Weakley is a freelance writer from Columbus, Ohio. In her free time, she enjoys the outdoors and walks in the park with her husky, Snowball.

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