Beginners’ guide to loans

Various types of loans are available to the average person. Some of the common loan types available are student loans, home equity loans, small business loans, payday loans, and bad credit loans.

Student loans are designed to pay for tuition and educational expenses for students attending college or technical school. Some student loans are backed by the U.S. government. These are called Stafford Loans. Stafford loans are available to all students, regardless of credit score. Non-federally backed student loans are also available, but require a good credit score and proof of ability to pay. In general, student loans have nominal interest rates. If you need a loan for tuition and related expenses, a student loan will generally be the best option for you.

Home equity loans borrow against the equity or value that you have built up in your home. For instance, if your home is worth $100,000 and you owe $70,000 you have $30,000 equity ($100,000 – $70,000). Because your loan has your house as collateral, a home loan generally has a reasonable interest rate. Because you are borrowing against the value you have built up in your home, this also means that if you do not make your loan payments, the bank may have the right to require a sale of your home to recoup the monies it has loaned you. A home equity loan is a good option for borrowers that are confident in their ability to re-pay, or borrowers using the funds to make improvements on their home.

Small business loans are given to fund a new business. Prior to applying for a small business loan, draft out a business plan that outlines the business you are starting, expenses, growth plans, and other details regarding your business. Various entities are available, such as the U.S. Small Business Administration, that assist entrepreneurs in securing loans. Generally, in order to qualify, you need to provide proof of being able to pay for your small business loan out of your current budget. If you are starting a new business, and need to secure borrow to do so, a small business loan should be your first avenue of choice.

Payday loans are short-term loans made to provide your earned paycheck to you earlier than your payday. These loans usually have high interest rates and low borrower requirements. Because interest rates are so high, it is best to avoid these types of loans.

Bad credit loans are available to people that have a poor credit history. The interest rate for these loans is usually high. It is best to avoid bad credit loans whenever possible.

In summary, there are many types of loans available to the average person. Depending upon your need, one or more loan types may be available. Research the options available to you, and contact various financial institutions and entities to learn about their products before making a decision.