Most people experience some kind of financial hardship in their lives. If you are having financial troubles, then a loan could be the solution to your problems. There are many types of loans out there, some that you may have heard of, others, you might be scratching your head asking "how do personal loans work?" or "Is there a limit to what I can get from a bank loan?" If you do decide to take out a loan, then it’s very important that you pay it back on time. Defaulting on a loan can be devastating for your credit score, which can stop you from being able to get a mortgage in the future. Conversely, if you pay your loan back on time, then it can actually boost your credit score and make you more attractive to lenders.

This article will explain what the different types of loans are, and will tell you how to choose the one that’s perfect for you:

Title Loans

Title loans, a type of secured loan, are very popular among borrowers. A title loan is a loan taken out against your car. If you default on the loan, then the lender will take complete ownership of your vehicle and sell it. In order to take out a title loan, you have to surrender your vehicle’s title to a lending company. According to the loan specialists at FaceTheRed.com, you can get a title loan taken out in as little as 24-hours without having to attend a store. This makes them a very convenient option for people who need money fast. You can only take a title loan out that amounts to the value of the vehicle that you are securing your loan against. If your car isn’t very valuable then you may not be able to get a lot of money.

Payday Loans

Payday loans have a very bad reputation, and it’s not hard to see why. Several years ago, multiple high-profile payday lenders were forced to close because the government found that they were lending to people who shouldn’t have been eligible for loans and putting them into a lot of debt. The companies were then bullying and pressuring borrowers into paying them back. 

Now, however, things are very different. Payday lenders are bound by strict regulations and have to thoroughly vet borrowers before they can receive a pay-out. They can charge a lot of interest, however. Even so, if you need money fast and don’t have a vehicle to take a title loan out against, they are a good option.

Bank Loans

Bank loans are usually secured loans and require high-value collateral, such as a house. There are myriad reasons why one might want to take out a bank loan, but the most common is remortgaging one’s property. A bank loan might also require security in the way of a deposit, which is common for mortgages. If you are going to take out a bank loan then make sure that you carefully research banks and find one that offers the best interest rates possible.

The best part about bank loans is that you are usually able to borrow very large amounts of money. If you are in a bad situation and desperately need access to lots of cash, then bank loans can come in handy. If you default on your loan, however, your collateral will be seized. If your house was your collateral, then you will be made homeless.

Family Loans

If you have close family or friends, then you could consider asking them for a loan. The only downside to borrowing from friends or family is that if you don’t pay them back on time, then you can damage your relationships with them. In addition, you make things very awkward when you ask your family and friends for money. Because you have asked, they will feel obligated to give the money to you, even if they don’t have it spare to give you. Only ask your family and friends if you are confident that they can afford it, and that you will be able to pay them back.

Guarantor Loans

Guarantor loans are a type of secured loan, in which somebody else puts up collateral for you so that you can get a loan. Guarantor loans are very common and can be a great way to get money fast. The downside to guarantor loans is that if you do default or can’t make repayments, it is your guarantor that suffers. For this reason, make sure that you only take a loan out if you absolutely need it and if you are confident that you will be able to make all repayments.

There are two categories of loans, secured and unsecured. In this article, we have explained a few of the most common types of loans from both categories. Make sure to think carefully about a loan before you take one out. Don’t take one if you don’t need it or if you won’t be able to repay it.