Loans are known to help you achieve your goals – both life and financial. For example, you must be dreaming of getting into your favourite university abroad, but looking at the fee structure, you realise this isn’t something you can afford at the moment. This is when loans help you overcome your financial hurdle and achieve your dreams!
However, borrowing money should not be taken lightly. Take interest rates and repayment tenure into consideration. Also, keep an eye out for your credit score since that is the deciding factor for what type of loan you can get.
Here are some of the most popular loan options available.
- Personal Loans
Personal loans have been in the financial market for years, and today, they are considered the best short-term ways to borrow money. They are perfect if you want a loan to cover small to large purchases and pay them off in a fixed tenure.
These unsecured loans typically range from £1000 to £25000. Today, various financial institutions give all types of personal loans. So, ensure that you compare multiple offers even though the amount is as small as £1000 loan or as huge as £25000!
- Bank Overdraft
Bank overdrafts are short-term loans that are recommended for emergencies only. Here, you can borrow money from your current account. This borrowed amount can go beyond what you already have in the existing account – so you go overdrawn!
No matter how tempting this model might look, you are eventually still taking a loan from the bank. So, ensure you return the borrowed money on time.
One of the biggest advantages of getting a bank overdraft is its flexibility. The borrowed amount can be changed as long as it stays within the limit you have set with your bank. Moreover, the interest rates will only be charged on the borrowed amount you have actually used.
- Secured Loans
Secured loans are secured against an asset. This means you have to keep something as collateral to get your loan approved. If you keep a property as collateral, it is known as mortgage or homeowner loan.
These are best when you want to cover expensive costs like home renovations or debt consolidation for larger amounts.
Moreover, if you don’t have a good credit score, you may get qualified for a secured loan. This is because an excellent credit score is a must for unsecured loans because that’s how the borrower decides whether to trust you. But with secured loans, even if you don’t have a great credit score, the borrower will have your asset in exchange for the borrowed amount.
- Credit Cards
Credit cards are a type of line of credit. When you get a credit card, you are tied in with a set amount limit determined by your credit score, income, and borrowing habits.
Generally, a credit card works like a loan. In loans, you borrow a certain amount from the bank and have to return it with interest within the set tenure. But when it comes to credit cards, you can get the set amount refilled in your card to spend it again the next month.
If you are going for a credit card, make sure you look for an interest-free card that doesn’t charge you added interest for the set tenure.
- Buy Now Pay Later
The Buy Now Pay Later (BNPL) model is a trending loan option best for borrowing a small amount of funds. Usually, this borrowing option is available when you shop online.
The concept of BNPL is simple. When you checkout, you don’t directly pay the retailer; instead, the BNPL provider will pay the entire amount to them on your behalf. So technically, you aren’t borrowing from a retailer but a BNPL provider. And you will have to return the money to the provider in small chunks within the set limit.
Some people confuse BNPL with EMI, but they are two different models working on the same concept. When you borrow money through an EMI, you must return it within the set time limit and the set amount for each month. But with BNPL, you can even repay the entire amount at any time of your tenure.
Which One to Choose?
Ultimately, all of the above options are some sort of loans that need to be returned within the set limit. Some are great when you want to borrow a large amount, while some are perfect for borrowing a smaller amount and repaying within a short term.
They all have their advantages and disadvantages. So, whatever you plan to choose, always do thorough research. Make sure they align with your financial needs and future goals!
Tanya Singh works as a Content Marketer at LoanTube – a loan comparison marketplace where borrowers can connect with multiple lenders via a convenient and transparent application. She writes about topics related to personal finance and loans helping her readers in making smart decisions when they need to borrow. Yoga brings her inner peace and strength, and traveling brings her joy (besides her work of course).