In the United States and Canada, it is quite common for people to lend money to each other.
People can borrow from friends or even from a lender or loan agency, that will charge them interest upon repayment. Which is basically the payment you have to make for getting a loan in the first place.
Let’s have a look at the most common types of loans that are out there.
Payday Loans
A payday loan is a short-term loan that is given to a borrower using a personal check or savings account on the promise of repayment with interest. Payday loans are typically for small amounts such as $300 to $500 and are meant to be repaid with the borrower's next paycheck.
A payday loan is typically seen as an alternative to high-interest credit cards and other forms of personal loans. However, they can come with some risks. One risk is that borrowers may not be able to pay back the loan and must rely on their next paycheck, which may be delayed by several days or weeks.
Payday loans can also carry high fees and interest rates, which can make it difficult for borrowers to repay the full amount owed. A great short term solution but not the best long term for some people.
Banks
Banks are different from lending clubs in that banks require people who borrow money to pay interest on what they borrow. This means that they risk losing more of their money if they cannot repay what they borrowed.
The most often term loan would be a loan where the borrower pays back the amount lent with interest. There are also some loans called "unsecured loans" where it is not necessary for the borrower to put up any collateral, like with secured loans. The most common form of secured loan is when you take out a mortgage on your home in order.
Personal Loan
Personal loans are one of the best ways to get money when you need it. Although typically secured by collateral, a personal loan can be risky if not used properly.
With a personal loan, you can borrow up to 50% of your liquid assets from a lender in order to help fund your business or purchase an asset. However, you will have to repay the loan from your liquid assets when it comes due.
If you need a personal loan for anything else, then there is no limitation on what the purpose of the loan can be.
Mortgage
A mortgage is a contract between a lender and a borrower in which the former agrees to give the latter an amount of money, on certain conditions, in return for providing the first with an asset such as property or shares.
A mortgage can also be referred to as a loan or debt that has been agreed upon by two parties with the lender taking ownership of collateral such as property.
It can also be referred to as an agreement between lenders and borrowers wherein the borrower agrees to provide repayment of borrowed funds over time.
Credit Builder Loans
Credit builders are loans that are designed to help consumers who have limited or no credit histories build their credit scores by making small, short-term loans.
Credit builders are not the same as payday loans. They're more like a revolving line of credit that the lender agrees to extend for a fixed amount of time. The borrower is then treated just like any other customer and has access to the same loan terms and loan limits as everyone else.
The idea behind these loans is that they help borrowers develop good financial habits so they can avoid becoming debt slaves later on in life.
Credit builder loans can be used for various purposes, such as improving your credit score, covering unexpected expenses, or consolidating debt with lower interest rates than payday lenders offer.
As you can see, there are literally loans for everything. At the end of the day, you have to decide which one is right for you and your situation.
Make sure you do your proper due diligence when it comes to applying for a loan and then go from there.
After all, you want to make sure you are always dealing with reputable companies. No matter what.