Know your different loan types
There is a loan type for every specific financing need.
If you are thinking about applying for a loan, it is absolutely important that you know the difference between the various types of loans available.
This allows you to not only know what loan type you should apply for but also the requirements of the loan type. With this valuable knowledge, you will know exactly what type of loan to apply for. By doing so, you increase your chances of loan approval.
To help you understand the different loan types, here is a quick guide to each one.
Personal loans
A personal loan is a loan you apply for when you want to fund something of a personal nature. Personal loans are often referred to as unsecured loans. Should you be planning a wedding, a holiday or the purchase of a lavish item, a personal loan is probably the way to go. It is also a loan type that is a standard service at most lenders. The interest rates on these loans vary from lender to lender and it is up to you to find the one that offers the most competitive interest rate and fees. Finding a reputable traditional or online personal loan lender is no difficult task.
There are different loans that fall under the umbrella term of personal loan:
Payday loan
Payday loans are becoming increasingly popular as it offers an instant cash solution. It allows you to loan an amount, which is repayable with your next salary. They have a repayment term of between 7 to 40 days. This type of loan is especially beneficial should you find yourself in an emergency. You can apply for a small amount of money to tide you over, usually between R100 to R1 500. Payday loans are usually approved and paid out immediately and the requirements for loan approval are low.
Short-term loan
A short term loan can be paid out just as fast as a payday loan but you can qualify for a larger amount. Usually between R3000 and R5000 and can be paid back over a time period of about 6 months.
Quick loan
A quick loan can be approved in as little as 3hours. These applications are mostly done online. You can apply for an amount of R300 up to R250 000 which can be paid over a period of time from 30 days to 6 years.
Vehicle loan
This is a type of personal loan that is specifically for buying your new wheels. A car loan can be used not only to purchase a car but sometimes, also a motorbike or caravan. This is a secured personal loan as the vehicle will be used as security while the loan is being paid back.
Debt consolidation loan
Consolidation loans offer financial relief for individuals who wish to consolidate a number of debt repayments into a single repayment. There are many benefits to debt consolidation and it does offer a method to ensure you become debt-free. Often your debt consolidation loan will come with a lower interest rate, than your smaller debts, which will save you money. A debt consolidation loan can also be spread over a longer period of time so as to make it possible for you to afford your monthly payment which will increase your disposable income. It can also prevent you from obtaining a lower credit score due to late repayments or defaulting on payments.
Student loan
A student loan is taken out specifically to finance tertiary studies. This type of personal loan requires you to be enrolled at a university to obtain a degree. While you are a student only the interest portion of the loan needs to be paid back. Once you have graduated and you are employed full time and earning a monthly salary, the capital amount will need to be paid back.
Business loans
A business loan has the function of providing finance for new and existing business ventures. The loan amount can be very high as business ventures often do require large funding. The requirements for business loans are quite different to any other loan type, as the loan is often taken under a business entity as opposed to an individual. The documentation that you would need to prepare is unique to business loans.
Loans for people with Bad credit
Should you have bad credit, a bad credit loan is probably your best option. There are secured and unsecured forms of bad credit loans. The tricky part is finding a lender that only offers the best interest rates and fees. Fees and interest rates associated with bad credit loans are often much higher than other standard loans.
Property finance
Mortgage or home loans are loans designed to finance property or homes. The loan amount is set very high as it is the biggest investment most consumers make throughout their lifetimes. Finding the right mortgage lender is what makes the difference in how much money you will be saving in the long term. It is important to thoroughly research a lender and the benefits on offer before making your final lender choice.
Bridging finance
There are three main types of bridging finance: RAF, property and pension bridging loans.
A bridging loan is essentially a loan taken out against an amount of money that you know will be paid out to you. If you are waiting for a payout from the RAF fund, from the sale of a property or from your pension fund then you can apply for up to 80% of this payout amount in the form of a bridging loan.
Knowing the variation of loan types assist you in knowing what loan type of loan is best suited for your current financial demands. Before you apply for any type of loan, you need to know exactly what the lender requires of you. Thus, it is important that you ensure you have submitted and provided all the information needed for your loan type to secure approval.