The world of finance can be confusing at times, but it’s important to understand the details of any financial transactions in which you partake. Even though payday loans are for relatively small amounts of money and only for a short period of time, they should be entered into with the same caution as any other type of loan.
Types of loans
- Payday Loan A payday loan, or payday advance, is a small, short term loan intended to assist with unexpected expenses until your next payday. Online payday loans can be 100% paperless, however many lenders still require applicants to fax in bank statements and paystubs to prove current emploment. The loan is paid directly into the customer’s bank account and repayment is deducted directly from the customer’s bank account on the due date.
- Secured Loan
A secured loan is one in which the borrower pledges an asset, such as a car or house, as collateral for the loan. The debt becomes secured against the collateral, and should the borrower default on the loan, the lender would have the right to take possession of the asset in order to satisfy the debt. In this scenario, the lender would then sell the assest to recoup the money that he lost on the loan.
A mortgage is a secured loan with the property itself used as collateral. - Unsecured Loan An unsecured loan is also known as a personal loan. This type of loan is given based on the borrower’s credit rating and it is not secured any valuable asset. Although these loans can be lower risk for the borrower because it’s not secured against an asset, they can also come with a higher interest rate for the same reason.
- Consolidation Loan A consolidation loan allows a person to consolidate or combine all their debts together into one loan. This is often done to get a lower interest rate and/or to have only one monthly payment towards their debt. This is also referred to as “debt consolidation” as it is a common type of loan amongst people with credit problems.
- Doorstep Loan A doorstep loan is a personal loan which is delivered by an agent to your home. Loan repayments are also collected by an agent at your doorstep. Doorstep loans are typically offered to people on low-incomes, single mothers or others who may struggle to qualify for a traditional bank loan.