The average American household has an average of $137,063 in debt, so it’s not surprising that money is tight for most families in the U.S. If you are looking to start a business and need funding, there’s no shame in looking for a loan. Taking out a loan can help you quickly get the cash you need to start that new business you’ve been dreaming of. But which type of loan is right for you? Here’s an overview of your options:
An unsecured personal loan is one of the most popular types of loans. You will not have to put up personal property as collateral in order to obtain an unsecured personal loan. Because there isn’t collateral, the loan is riskier for the lender, which means they will need to check your credit. The lender will determine whether or not you are approved for the loan—and what interest rate to charge you—based primarily on your credit score. For this reason, an unsecured personal loan is not ideal for people with poor credit.
Unlike unsecured personal loans, secured personal loans are backed by collateral. Lenders allow borrowers to use checking accounts, savings accounts, homes, or other personal property as collateral to obtain a secured loan. These loans carry less risk for lenders since collateral is involved, which means interest rates are lower. However, if you fail to repay the loan, the lender has the right to seize the property that was put up as collateral.
If you own a vehicle, you may qualify for a car title loan. Borrowers who take out car title loans use the title to their vehicle as collateral. Because the vehicle is used as collateral, the amount of the loan that you are approved for will depend on the vehicle’s value.
A car title loan is a good option for people with bad credit. Your credit score won’t matter to car title lenders as long as you can prove that you are the owner of your vehicle and you are capable of paying back the loan.
Many credit card companies allow their customers to take out cash advances, which are short-term loans that are borrowed against your credit limit. It’s similar to withdrawing money at an ATM, except the money is coming from your card’s credit limit rather than your checking account.
The amount that you are allowed to borrow can vary on case-by-case basis. But in general, your credit card cash advance limit is usually lower than your actual credit limit.
If you have incurred multiple debts, you might want to consider a debt consolidation loan. If you are approved for a debt consolidation loan, all of your credit card, mortgage, and other debts will be combined into one monthly payment. This loan will typically carry a lower interest rate than the rates on your existing debts, which means you won’t have to pay as much over time. Since one monthly payment will cover all of your debts, a debt consolidation loan also makes it much easier to keep track of your finances and make payments.
As you can see, there are a number of different loans available to people who are in need of cash. Make sure you consider each of these options before deciding which type of loan is right for you.