Various loans for personal use are available in today’s progressive financial sector. You can fulfil all sorts of needs and aspirations with a loan as your financial tool. But so many choices can be intimidating. Are you confused about which loan to use for which requirement? This post describes the scenarios in which you need to use the 4 significant types of loans.
4 Types of Loans & Their Purposes
Following are the 4 major types of loans and their usage for your reference:-
1. Personal Loans
Many banks and lines of credit provide salary advance loan. You can use these loans from buying a new home appliance to funding your marriage. There is no restriction on the use of personal loans.
However, a borrower needs to show solid financial stability and a reliable credit score. Therefore it’s easier to get a personal loan based on salary. These salary-based loans come with flexible repayment terms. However, personal loans are unsecured loans. So their interest rates are higher than secured loans.
2. Credit Card Loans
Every time you use your credit card, you automatically accumulate credit. Therefore if you need to buy something expensive and your credit card limit covers its entire or majority cost, you can use your card to pay for it.
Many credit card companies offer EMI repayment on costly purchases. Check with your credit card provider if any such facility is available. You can also instantly take out cash advances from your credit card from any ATM. But it comes with ridiculously high interest rates, so it’s not recommendable. Know more about credit card loans and instant cash loans
3. Home Equity Loans
If you own your home, you can take a home equity loan. Although you put your home as collateral, you get it at a low interest rate and longer repayment tenure. You can use this loan for personal use. But mostly, a home equity loan is taken for upgrading or expanding the current house. The calculation of the loan amount you are eligible for can be tricky.
You can either borrow the amount equivalent or up to a certain percentage of your house’s current equity or the amount of mortgage paid off. Some lines of credit also allow home equity loans with manageable interest rates.
4. Small Business Loan
Budding entrepreneurs take small business loans. They take this loan to start a new business or expand an existing business. If you are a business owner, you need to showcase a credible business plan to convince the lender to give credit to you. They review the project and set the conditions of the loan.
The terms and conditions usually include your personal asset as collateral against the default in payment.
In a Nutshell
All these loans fulfil different purposes. Personal loans based on salary or credit cards are of great help for immediate cash requirements. Home equity loans are ideal if you want an extended tenure and low interest rates. It’s preferable for home expansion needs. However, if you need a loan for business, various small business loans are at your disposal.
About the Guest author
Tanvi Kaushik specializes in Content Marketing and works with the Digital Team at KreditBee – India’s fastest personal loan platform where self-employed and salaried professionals can easily avail of personal loans in just a few minutes when in need of quick funds.
Tanvi writes to-the-point articles on personal finance and budgeting which are truly appreciated by her readers. She is committed to making money matters easy to understand even for the layman. Her commitment to her work doesn’t stop her from pursuing her hobbies of hiking, trekking and going on adventurous trips.
