Only 29% of Americans are considered financially healthy. If the average person has an emergency expense, most either don’t have enough money in savings and/or don’t earn enough money to cover that cost.
But more people have another financing option: loans.
Loans can help cover the cost of emergency expenses or even specific expenses, such as a car. These loans are called personal loans and there are many types of loans out there. You pay back the loan over a certain period, usually with added interest rates.
But navigating the loan market can be difficult. Here are our top categories of loans and your options in 2020. Before you sign up for a loan, take a look at your options and know which is the best loan for you.
We briefly described installment loans in the previous section. But since installment loans are so common, it’s essential to devote a whole section to this loan type. With installment loans, you borrow a set amount of money and pay them back in monthly installments, also called loan terms. You and the lender agree on the borrowed amount and the time you have to pay back the loan. Some lenders offer autopay to ease the payback process. Installment loans are diverse loans and could be used to describe many loan types, including mortgages and auto loans.
We also mentioned payday loans, but we must describe these loans in detail. With payday loans, you borrow the average amount you receive on your normal paychecks.
When you apply for a payday loan, you include paystubs for your last few paychecks. Your lender may also look at your financial history and your credit score (though there are lenders who won’t look at your credit score). Payday loans have short-term payback periods and usually, come with high-interest rates.
If you’re looking for a secured loan and own your car, you can get a title loan. With title loans, you borrow your loan against your car. While these loans are great if you need financing, they usually come with high fees — and you may lose your car if you can’t pay off the loan.
Do you have several loans you’re paying off? Are you in credit card debt? You can take a consolidation loan to help pay them all off. Consolidation loans, also called debt consolidation loans, are beneficial because they usually come with lower interest rates and they simplify the loan pay-off process. They often come with longer terms, lowering your monthly payments. There are also specialized consolidation loans, such as student consolidation loans. While they’re not for everyone, consolidation loans can help you take control of your debt and achieve better financial health.
USDA and Mortgage Loans
There are several home loans out there, but one of the most affordable is the USDA loan program. If you plan on buying a home in a rural area, these loans are convenient because you don’t need to put a down payment on the home. These loans are convenient for those who don’t have money for a down payment, don’t qualify for a traditional mortgage, and they even offer low-interest rates. Qualifying for a USDA loan is easy and they’re very accessible. There are some downsides to taking a USDA loan. For example, you won’t be able to take a home equity loan out on your home.
Many people decide to take out an auto loan when they buy a car. With auto loans, you put a down payment on a car and pay off the rest in fixed monthly payments with added interest. Many factors impact these payments, including the cost of the car, whether it’s new or used, the repayment period length, your credit score, your repayment history, and the interest rates you qualify for.
Student loans are financing meant to help a student pay for college. Student loans cover expenses such as tuition, books, school supplies, and even living expenses.
There are downsides of student loans — as of 2020, the country’s student loan debt is now at almost $1.6 trillion. Student loans cause students, often young, to be in serious debt and it can take years to pay off the loan. But there are benefits to taking out a student loan. They offer convenient financing options, usually come with low-interest rates, and students usually don’t pay off these loans until they graduate college.
There are also more student loan options now than ever. These include:
- Federally-funded loans
- Private loans
- Loans for students with financial needs
There are many options where students can get their student loans. While banks usually require a good credit score and a specific salary (or a co-signer), federal loans usually have fewer restrictions.