Consumer Loan Variations
Unsecured Loans require no collateral and are granted on the basis of a person’s credit rating and references. One of the most common kinds is signature loans issued primarily in the basis of a signed agreement to repay. For example, student loans issued under the guaranteed student loan program are signature loans, but with the important addition of a federal guarantee.
Lines of Credit
Similar to signature loans are line of credit loans that do not require a separate application every time you want an advance. Instead your pay history is checked at the outset and a dollar maximum or line of available cash, is established for you. With such loans, you may borrow up to your limit at any time or, if the lender so specifies, for a certain period, such as a year or two.
A variation on these loans are overdraft loans, which let you write your own loan up to your limit in effect an extension of your checking account. After a bank or other financial institution has established a maximum amount, you can use your regular checks even when there are not enough funds to cover them in the account. Such an overdraft automatically becomes a loan to you at an agreed upon rate of interest and typically in multiples of $50.00 or $100.00. With overdrafts the interest charge for the service generally begins when you use the line of credit and ends when you repay the amount owed.
Still another way of classifying loans is by the use to which they are put. For example, automobile loans are offered by a wide variety of lenders. At one time, such loans were restricted by creditors to three years, then they were extended to four years, and how they have maturities of as long as five years which is longer than the life of some cars. As the maturity increases, the monthly payment decreases, but the dollar finance charge rises. Most finance rates on used car purchases is higher than those for buying a new car.
Debt Consolidation Loans
Many lenders also offer debt consolidation loans – large loans designed to give you enough money to repay all of your small loans. The result is lower monthly payments, since you have put all your debts into one basket and stretched out the payback over a longer period. At the same time, though, the interest rate on the new loan is probably higher than on the smaller debts, so that your total finance charge will be greater in the long run. Debt consolidation loans may make sense when you cannot keep up with your current payout schedule. But such a loan should not be under taken without the realization that you will be paying more for the privilege of relieving some of the time pressures of repayment.
Title Pawn or Car Title Loans
Many times, borrowers needing fast cash as in a title pawn transaction mistakenly try to utilize pawing the title to their vehicle as a way of creating a debt consolidation loan. This is never a good idea considering the high level of interest rates typically charged by title loan, and title pawn companies.
Title pawn transactions are typically meant to be used for fast cash, and with the expectation that you will be paying the money back within thirty to ninety days.