Although they are consider to be bad loans, however, some loans can help us improve our credit or resolve emergency problems, such as medication. Most people avoid these loans by building emergency funds. Following are some example:
Debt Consolidation Loans
Debt consolidation lets you streamline your payments by applying for a new loan to pay off your other debts, therefore leaving you with only one monthly loan payment. If you have high-interest debts like credit cards or a high-interest personal loan, a debt consolidation loan can benefit you in two way:
- First, you could qualify for a lower monthly payment.
- Second, you could qualify for lower rates, which can help you save money over the long term.
In order to get a benefit of a debt consolidation loan that aims to improve your payments or credit record, individuals need first to research for a lower rate than their current loan or credit card. Also, individuals are more likely to benefit if their credit has improved since they took a debt consolidation loan.
Credit-Builder Loans
Credit-builder loans are small, maximum of 3000 USD, short-term repayments. The loan is intended to help individuals without any credit background. This kind of loan targeted individuals with zero or limited credit. Therefore, they don’t need good credit to apply for the loan, unlike regular loans. In the United States, you can typically find credit-builder loans at credit unions, community banks, Community Development Financial Institutions CDFIs, lending circles or online lenders.
Instead of receiving the loan funds upfront as you would on a traditional loan, you make fixed monthly payments and receive the money-back at the end of the loan term. Credit-builder loans typically have annual percentage rates APRs between 6 percent and 16 percent.
Credit-builder loans can be a very affordable and safe way to start building credit, especially for those who want to start their business.
Personal Loans
A personal loan is one of the most popular types of unsecured loans that offer instant liquidity for debtors. Unfortunately, the interest rate on the personal loan is higher due to an unsecured mode of finance. In most European countries, individuals can apply for a maximum of 20000 EURO. A personal loan typically has repayment terms between 24 and 84 months. Individuals commonly use personal loans for unrelated investment things, such as:
- Vacations
- Emergencies
- Medical treatment
- Home renovations
- Debt consolidation
- Relocating to a new city
Family Loans
Family, relatives, or friends related loans are informal loans that you get from family members or friends. For example, you may choose to turn to family member if you can’t qualify for a traditional loan from a bank or lender.
Family loans can be useful because you don’t need any credit to get one. If your family member trusts you and they have the financial ability to do so, they can choose to give you the loan.
However, most people who are involved in the family loan take advantage of your family member’s generosity by default on their repayments. It can be a good idea if the borrower and the lender agree to draft and sign a loan agreement. The draft can include interest payments, due dates, late fees, or other consequences for non-payment.
Bad Loans
We usually don’t recommend these types of loans because they’re very expensive, have small loan limits, and require quick repayment. Most bad loans can either be unsecured or secured loans and are specifically designed to finance the purchase of a boat or car, for instance. An example of bad loans are loans that are not used for investment. An example of these kinds of loans are available through banks, credit unions and online lenders, Payday Loans, Title Loans, Pawnshop Loans, Boat Loans, Recreational Vehicle RV Loans etc.