Choosing a loan can be a really overwhelming process. There are a lot of different options out there, and most of them are shrouded in mysterious jargon, which makes it quite difficult to understand what it is that you are actually agreeing to. Before contacting any loan providers, it’s a good idea to have some knowledge of what the different options are.
Things to Consider
The first step is to understand your own situation, what you can afford, and what type of loan you would like.
When choosing a loan there are two main types to choose from, secured and unsecured.
- Secured loans are loans that use something as collateral, usually a house or car. If you fail to meet repayments on the loan, then you lose whatever it is that you put up as collateral. Because you are putting up possessions as collateral, you can usually obtain a better interest rate on a secured loan, but of course, the risks are higher if you don’t make the repayments.
- Unsecured loans are loans where you don’t put anything up as collateral. They often require a much better credit score to be granted one, and because the risk to the lender is greater there is often a higher rate of interest.
It’s important to think about how much you really need to borrow, over what period of time, and how much you can realistically afford to pay back on a monthly basis.
Options for Poor Credit History
If you have a poor credit history, the most common options that people talk about are a car title loan, whereby you are loaned money using the title of your car deed as collateral, or an unsecured personal loan with a higher interest rate.
It depends on you, why not go for a car title loan or a personal loan strategy, but there are other options available such as:
- Loan against gold. Similar to a car title loan, you can put up any items of gold you have such as jewelry up as collateral for a loan. Some people prefer this option to a car title loan because losing your car often means a risk to your livelihood, whereas jewelry does not.
- Loan against financial securities. If you have shares or bonds, it’s possible to take out loans using them as collateral. Typically you would be offered up to 50% of the value of your bonds or shares as a loan amount.
Do you Really Need a Loan?
If you are taking out a loan in order to pay off debts, it’s worth considering if there are other ways to tackle the problem, first.
One effective method for paying off your debt is to make a list of all of your debts in order of size.
Then, make a plan to pay off your smallest debt first by reducing your spending in other areas, which then frees up the minimum monthly payment amount for that debt and means you can put it towards your next biggest debt, and so on. Before you know it you’ll have made huge progress in paying off your debts.