Understanding common types of loans
Buying a new house or vehicle or starting a new business is a big investment for most people. Even if you have the cash to pull off such an investment, financial experts advise opting for a loan for expensive purchases to maintain liquidity. Moreover, affordable interest rates and manageable payment schedules make it easier to deal with fixed financial obligations. Here are the common types of loans that can help you fund an expensive purchase:
Personal loans
Personal loans are commonly used to tide over some emergency or pay off outstanding debts. You can also use them to pay for expensive products or services. Depending on the amount, you can get the funds in less than 24 hours. Banks charge a fixed interest rate on the principal, and the loan is repaid in equated installments over a fixed tenure. The lumpsum cash can be used to pay off anything. Personal loans carry a lower interest rate, don’t require collateral, and are quickly disbursed by most banks and financial institutions. You can use it to pay for education, an expensive vacation or a wedding, a new vehicle, or for home relocation and remodeling.
Business loans
Banks and credit financial institutions also provide exclusive funding for small and mid-size businesses that require capital for initial setup and operations. But business loans are not easy to get approved for because banks need to verify the creditworthiness and financial background of applicants. You need to have an established base for conducting business and show tax returns, sales receipts, and yearly income to be eligible for extra funding. Once approved, a business loan can be used to expand current operations, upgrade or replace old equipment, stock up on inventory for production or manufacturing, and even hire fresh staff to manage the expansion.
Auto loans
Today, vehicle financing has made it possible for everyone to own and drive a car. Borrowers can get access to these funds within a short period and can get them at favorable interest rates if their credit rating is high. Dealer financing, banks or credit union loans, and even online private lender loans are common modes of vehicle financing. With the first option, you can directly avail loan from the vehicle dealership. Alternatively, banks may offer more competitive rates of interest and repayment options. Auto loans are available for most types of personal use and commercial vehicles.
Home loans
Real estate is one of the most expensive purchases. For this purpose, banks and credit unions offer home loans at a fixed interest rate and repayment tenure. Multiple factors make this loan expensive, including application fees, processing fees, credit rating, underwriting commission, federal taxes, and insurance costs. In addition, closing costs have to be paid after the loan is approved and disbursed.
To buy a new house or property, you can opt for conventional mortgage loans, Federal Housing Administration Loans, U.S. Department of Agriculture Loans, or even Veteran Affairs Home Loans.
