Taking a loan from the bank is not a simple decision, but sometimes it’s inevitable. Once you decide to take a loan, you’re going to commit to paying it off for months or years, so it’s a pretty big commitment. When you take a loan, you’ll end up with a principal, the borrowed amount, and the interest, which is the charge for receiving the loan. Yes, the bank will satisfy your current financial needs, but not for free because you’ll have to pay a certain amount of interest for the favor. The amount of the interest depends on the lender, and the amount of money you’re planning to lend, so check everything before you commit.
Aside from banks, alternative lenders on the market offer loans in less than three days from the application and offer better conditions. If you decide to go with alternative lenders, you first need to check whether the U.S Small Bussiness Administration approves them, commonly known as SBA. The SBA is a federal and legal agency dedicated to providing small businesses with capital to keep their business successfully running, expanding, growing, or recovering. So, if you find an alternative lender that offers better loan conditions, such as Biz2Credit, you first need to ask: Is Biz2Credit SBA approved? The loan will be completely legal and safe if the lender is SBA approved.
What Types of Loans Exist?
While there are many types of loans that banks and alternative lenders offer, some of the most common types are working capital, commercial real estate, personal, and term loans. Let’s check out the most common types of loans in detail.
Working Capital Loans
Working capital loans are loans used to fund everyday expenses such as rent, payroll, and everyday costs that must be covered to keep the business running. These loans are mostly taken by businesses when their season is a bit off to fund the everyday things until the season takes on. The working capital loan is excellent for small businesses that need money quickly to keep their business running smoothly. Both banks and individual lenders provide this type of loan, but most businesses tend to lend from individual lenders because they offer better conditions, and the loan can be approved in a couple of days.
Commercial Real Estate Loan
Commercial real estate loans are generally taken by investors and big corporations that own and operate commercial real estate. Commercial real estate is any real estate used for business purposes and brings an income. A lien on commercial property secures this type of loan. Banks, individual lenders, insurance companies, and private investors offer commercial real estate loans. The interest depends on the lender.
Personal Loan
A personal loan is commonly unsecured, meaning a loan where you don’t have to put down collateral. These types of loans can be used for almost anything, although some lenders can put some restrictions. The personal loan is commonly between $1000 and $50.000, with payment terms from 1-10 years. Also, the interest on personal loans is fixed, so it won’t change during repayment. Banks and individual lenders also offer these types of loans, but people prefer individual lenders because the loan can be approved much quicker than a bank.
Term Loan
A term loan is mainly given to small businesses that have established financial statements in exchange for certain borrowing terms. The business is given the loan, and then they have to repay it with a fixed or floating interest rate. This type of loan is commonly taken for purchasing assets such as buildings or equipment. Also, these loans are more flexible and have lower interest rates, making them more attractive.
The Advantages of Taking a Personal Loan
Just like anything else in life, personal loans have both advantages and disadvantages. Let’s see what the advantages of taking a personal loan are.
A personal loan can be used for everything
Personal loans are the most popular types of loans because they’re versatile, and you can use them for almost anything, like renovating your home or paying for your wedding. This is the right loan to take if you have any financial need for a family, personal, or household purpose. On the other hand, some banks and individual lenders restrict using a personal loan for buying real estate or starting a new business.
Personal loans have a fast refunding time
Personal loans have a fast approval and payment time, making them perfect for a financial emergency or where you need money as quickly as possible. Some individual lenders can even loan the money within 24 hours from the application.
You’ll get a one lump sum instantly
The personal loan will enable you to have the loan payment all at once, so you can use all the loan money.
Personal loans don’t have collateral requirements
You won’t be required collateral to get approved for a personal loan. This means you won’t have to put your home or other valuable assets as a guarantee that you’ll repay the loan. On the other hand, this doesn’t mean you’ll be safe if you fail to repay the load upon the agreed terms. You will face certain financial consequences but won’t worry about losing a valuable asset.
Personal loans have lower interest rates
Personal loans are popular among people because they have the lowest interest rates, unlike other types of loans.
Personal loans have longer loan terms
Personal loans commonly have a term that ranges from 2-10 years, unlike short-term loans. Since you’ll have an extended period to get the loan back, you’ll have lower monthly payments.
A personal loan is easier to manage
Most people consider personal loans much easier to manage than credit card accounts. With a personal loan, you’ll get a fixed rate that you have to pay once a month, and that’s much easier than managing several credit cards with different payment dues, interest rates, etc.
The Disadvantages of Taking a Personal Loan
Since we’re done with the advantages, let’s see the disadvantages. In reality, a loan is a loan, so it must also have certain disadvantages.
Personal loan fees and penalties can be high
Before applying for a personal loan, review the bank’s or individual lender’s fees and penalties. We’re advising you this because there are fees for loan processing, which can be added to the loan. Also, some lenders can even charge you high penalties if you want to end the loan before term.
Increased debt
A loan is a loan, no matter its advantages of it. Once you take a personal loan, you’ll have a dept to the bank or other lenders that you must pay monthly.
More eligibility requirements
Some personal loans have more strict requirements. If you have a short financial history or poor credit, not many lenders will approve your loan.
Personal loans require a monthly payment
The monthly payments are both advantages and disadvantages. This monthly payment won’t be an issue if you manage your money well. On the other hand, if you’re not careful, those monthly payments can cause problems with your daily living expenses.
Getting a personal loan is right for you if you:
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- Need cash quickly
- Want to pay off high-interest debt
- Have a strong credit score
- Use the loan for necessary expenses
Do not get a personal loan if:
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- You don’t know how to manage your funds properly
- You don’t have a crucial purpose for the loan
- You can not afford the monthly payments
- You don’t need money urgently
Conclusion
Before you decide to take a personal loan, make sure you have a plan on how you’ll use that money and will you be able to pay them with interest. Although a personal loan has many advantages, it’s still a loan, and you’ll be obliged to make your monthly payment. So consider all things, and don’t forget to check out the fees and penalties. Lastly, read the application form very carefully before signing up for anything.
