Not all financial emergencies can be anticipated in advance and many times the only way out of them is to obtain cash loans. Several types of cash loans are available to meet the financial needs of both credit worthy and bad credit borrowers. Here’s a list of the common types of cash loans, which you can opt for if faced with an unexpected financial crunch.
Navigation of the Different Types of Cash Loans
1. Payday Loans
A payday loan is a type of cash loan where the borrower can return the loan amount after he receives his monthly paycheck. A payday loan helps the borrower pay for urgent medical bills, tuition fees, home repair bills and Christmas gifts. It is a short term loan where generally smaller amounts are borrowed. It is best suited for those with a steady job and income.
An advantage of payday loans is that they can be obtained quickly without the hassle of much paperwork. You can apply for payday loans online or approach a private lending store.
To obtain a payday loan online, you will have to fill an online application form with the necessary personal and financial information asked for. The lender normally gets back to you within a couple of hours. On approval, the amount is credited directly into your account and debited along with interest amount after your subsequent payday.
If you want to obtain a loan from a private lender, you will have to give him a postdated cheque in return for the loan. On the due date, you have to return the borrowed money in person. If you fail to repay the loan, the lender will encash the cheque.
2. Cash Advance Loans
A cash advance loan or emergency cash loan is a short term loan that helps borrowers meet immediate and urgent expenses. The interest charged on this type if loan is typically quite high. A cash advance loan is for people who are experiencing a temporary financial crunch.
You can obtain the loan online or from emergency cash loan agencies. In both cases, you will have to show that you have a stable employment and remuneration. You should also have a direct deposit bank account. If you meet these two criteria, then your loan will be easily approved. Lenders usually do not conduct a background check on the borrower to approve cash advance loans.
The key advantage of emergency cash loans is the quick approval and encashment. Lenders respond almost immediately once you apply for the loan. After it is approved, the amount is wired to your account within a day.
3. Secured Loans
A secured loan is one where the borrower has to put down an asset as collateral. The collateral could be homes, cars, antiques or jewelry. If the borrower fails to repay the loan, then the lender can sell the asset put down as collateral to get his money back.
Though there is a risk associated with this loan, there are also some advantages. A secured loan is offered at low interest rates. This is because the lender is confident that the borrower will not risk losing the valuable asset he has put down as collateral and repay the loan promptly. If you approach a private lender for a secured loan, you will be in a better position to negotiate the loan terms and interest rates.
Those who have difficulty in obtaining an unsecured loan can get a secured loan more easily from banks and lending institutions. The underwriting for secured loans is less restrictive. Paying back secured loans on time also helps you improve your credit score.
4. Unsecured Loans
An unsecured loan is one where the bank or lender just takes the borrower’s word as a guarantee. Such a loan is approved only if you have a good credit history. If you cannot demonstrate your credit worthiness to the lender, then your application will be rejected.
It is a low risk loan, as the borrower is not required to put down his assets as collateral. But it is offered at higher interest rates with loan terms and conditions being quite restrictive. It is ideal for those who do not own a valuable asset or do not want to take high risks. Unsecured loans are generally associated with smaller loan amounts.
If you have a steady income and are confident about repaying the borrowed amount, then this is a suitable loan for you. An unsecured loan is designed for borrowers who honor their word and can be trusted to abide by all the loan terms. Your credit history plays a major role in getting such a loan approved. If you have a bad credit score or you have defaulted on any previous loans, getting this type of loan on favorable terms would be difficult.
5. Student Loans
Not many students can afford to pay for their college without taking loans. The college education costs include the college fees, costs of books, accommodation and other living costs. Student loans are specifically designed to meet the need of students who can not fund their education themselves.
The student can borrow significantly large loan amounts and return them after he or she graduates and gets a job. Personal loans are offered to students at lower interest rates and can be repaid over the course of several years. The lender takes into account the credit history of the student and/or the student’s guardian or parents. The student can also get a relative or friend with a good credit history to co-sign the loan with him or her.
A student can normally request the bank or lender to reconsider if he or she has been refused a loan the first time. This is a rare occurrence as student loans are easily approved if the borrower can provide the assurance that the loan will be repaid. There are many private lenders also who offer good rates and terms on student loans. Students can even go for short term cash loans from such lenders.
6. Bad Credit Loans
As the name implies, a bad credit loan is one that is offered to people with a bad credit score. Banks turn their backs on individuals with a bad credit history and low scores. Such individuals can obtain loans from private lenders or institutions specializing in bad credit loans.
Secured, unsecured, payday and other cash loans are offered to individuals with bad credit history. A balloon loan is one such kind of bad credit loan where the borrower has to pay a single large amount at the end of the loan term. For this loan, the borrower has to make only smaller interest payments every month. One advantage of a balloon loan is that the borrower has a good amount of capital at his disposal over the course of the loan.
A high-risk loan is another type of bad credit loan that is offered to those with an extremely poor credit score. It comes with high interest rates and fees. If the borrower is successful in repaying the high-risk loan on time, then his credit score improves by some points.
There are three kinds of lenders who offer bad credit loans. The first kind is a payday loan lender who will approve a payday loan if you have a steady income. The second kind is a hard moneylender who is a specialist in providing loans to bad credit borrowers. A hard moneylender offers secured loans (i.e. with collateral) to borrowers with bad credit. The third kind is a private moneylender who offers unsecured loans at very high interest rates to borrowers with bad credit.
You can get bad credit loans from both online and offline lenders. These loans are generally high interest loans and have high associated fees, as the perceived risk of the borrower is more.