If you are looking to buy a house, go to school, or start a business, you will likely need to borrow money to do so. While taking on debt to finance your future success can be a smart move, it is important to choose a loan product that best meets your needs and budget. Here are the differences you need to be aware of between the types of loans.
Installment loans have a fixed number of payments and typically come with a fixed interest rate. Lenders will typically let you know ahead of time what your monthly payment will be, when it is due each month and what the interest rate on the loan will be. Unlike a line of credit, an installment loan simply goes away after it is paid in full. Auto loans and mortgages are common examples of installment loans.
Factoring loans are used by businesses that are looking to improve their cash flow. This type of loan allows a company to sell its accounts receivable to a lender at a discount. A factoring loan can be ideal for companies that don't want to wait 60 or 90 days to get paid or don't want to risk not getting paid at all.
Line of Credit
Keep in mind that with a line of credit, the interest rate fluctuates over the life of the loan. Therefore, it may be in your best interest to pay down the outstanding balance as quickly as possible to keep finance charges to a minimum. With a revolving line of credit, your available balance goes up each time you make a payment. Lenders may offer lines of credit on an indefinite basis or for a set period of several months or years. Minimum payments may be required by some lenders.
Hard Money Loan
Hard money loans are made by private lenders who are looking to make a return on their available capital. Hard money lenders typically work with those who don't have a good enough credit score to get a traditional loan. They may also work with borrowers who simply don't want to bother going through a credit check or who want to get funded immediately.
Borrowing money can be an effective way to help secure your personal or financial future. If you have any questions about a specific loan product, it may be a good idea to speak with a loan officer at a local bank or credit union. Friends and family members may also be able to provide advice about various loan products that may be available.
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