Many people have at one point in their life found themselves at a juncture where financial assistance was, if not a necessity, then at least a major want. In fact, recent estimates say as many as 20.2 million Americans have taken out a loan of some sort [1].
Whether you are contemplating buying a home, financing a new business, or getting started on higher education, some life costs add up quickly and we can’t always afford to pay for them out of pocket. You’re probably already aware that a loan can be a great help in such situations, but you might not be fully versed in how the loan situation works. More to the point, you may be feeling unsure on how to choose the right loan for your future.
Fortunately, the process is pretty easy to learn and understand once you key in on some important points. Read on to learn our best guidance on the loan process, and find out if acquiring a financial loan is right for you.
Understanding The Different Types Of Loan
Right off the bat, you should know that there is not a one size fits all formula when it comes to loans. There are many different kinds, and the type you select will depend on what you intend to do with the loan money once you’ve secured it. A home loan is one of the most common and frequently used, which is when a bank lends you a substantial portion of a home purchase price after you pay a smaller portion known as the down payment. A business loan is another common type, typically used when you need startup costs for opening a new business. There are car loans, school loans, and even medical loans. And a personal loan is one you can use for any type of personal reason, and is among the easiest to qualify for [2]. Each of these is typically secured through a bank, but might also be secured through some sort of credit union or credit agency.
The amounts of money secured for these loans is typically determined on a case by case basis and is usually determined through a combination of details like what you need the money for, how much you need, and what your credit situation is. However, even those with little credit history or less than stellar credit can typically acquire some type of loan, thanks to the variety of options out there.
The Loan Pay Back Process
Once you’ve secured a loan, there’s another huge issue to consider: how will you pay it back? The parameters of how the money will be paid back is usually decided before the loan contract is signed. For this, you need to think of two key things. First, at what point in the future will you be financially solvent enough to begin paying back money? You don’t want to commit to a repayment plan that sets you up for failure right from the onset. If you’re a student acquiring a school loan, you may be unable to repay until you finish your degree. If you’re getting a new business loan, you might not be able to pay back any money at all until your business starts making a profit. Don’t sign on for anything that you don’t feel financially able to handle.
Second, you need to consider the interest rate. Most any loan you secure is going to come with an interest rate, meaning you pay a bit over the amount you actually borrowed. While low interest rates are often able to be secured for something like a home loan or business loan, you might find the interest rates too high with some credit services for other types of loans. It’s always in your best interest to shop around and see who is willing to give you the best contract.
But Is A Loan Right For You?
While you may have a better understanding now of what types of loans are out there and how they work, that doesn’t necessarily answer the question of what type of loan is best for your own personal financial needs. The decision is yours alone to make, but there are some parameters to keep in mind in making the final decision. If you are someone that feels capable of putting together a strong repayment plan, if you are able to meet those deadlines, if you are a detail-oriented and motivated person, and if you have a good work ethic, then this might be a great plan for you.
Similarly, if you have a good credit history, you will likely find acquiring a loan with ideal pay back details is a breeze. Banks use your credit history to determine if you are a good loan candidate [3]. Putting together a sound plan for yourself is a big part of the battle in acquiring a loan, using it wisely, and paying it back in a timely manner. In doing this, you ensure that the loan process doesn’t come to negatively define your financial future.
Moving Forward For Enhanced Financial Success
Ultimately, the decision is yours, of course. There’s a lot to take in and understand, but one of the most important things is to make the choice that is the best fit for you. For many people, acquiring a loan is the first step in a new path toward a better future. But you have to understand what you’re getting yourself into. If you grasp the basic concepts and feel prepared for the next step, this financial freedom can open up a world of possibilities.
It’s not a decision to be taken lightly, but you are hopefully now better prepared to be the master of your own fate and potentially acquire the loan that sets you toward a brighter future. Like so many things in life, a good education on the topic at hand can be a great starting point for success.
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