It can be tricky knowing when to use different types of loans especially if you have not done a lot of borrowing before. It is therefore a good idea to have a think about the different loans that are available and think about who they are for. This means that when you come to borrow, you will have a much better understanding of your options and will be more likely to make the best decision when picking between the different loans. Considering the different features of a loan should help you to be able to more easily understand them.
How Much Can be Borrowed?
It is good to start with knowing how much you can borrow with different types of loans. Although lenders will vary in how much they will allow people to borrow, there are general guidelines to have a think about with regards to how much the type of loan will normally give. For example, a mortgage will give massive amounts of money, hundreds of thousands of pounds, but an overdraft will normally only be a few hundred. So make sure that you are aware of how much you would expect to borrow, within a range of figures, for different loans.
What are They for?
It is worth thinking about whether the loans have a specific purpose. There are some loans types which have a very specific purpose such as a mortgage can only be used to buy a home. However, there are also a lot of loans which do not have a specific purpose and so you will be able to use these for anything that you wish. However, the way that the loan works can have some influence on what it can be used for as you could not use an overdraft to buy a house because you cannot borrow enough money, for example.
How are They Repaid?
It is a good idea to know what the expectations for repayments will be with the loans. Some will have regular monthly repayments and that is often how we expect to repay loans. However, there are exceptions to this and these include overdrafts, which are repaid when money gets paid into your current account. It is important to know how they are repaid because you need to be sure that you will be able to afford the repayments and be aware of when you will need to find the money. Whether you repay in a lump sum, instalments or in less formal amounts, can be important and can influence your ability to repay so it is important to know this.
How Long do They Last?
It can be a good idea to also know how long they last. Some people do not like the idea of being in debt and so they want a loan that will not last very long. Other people would prefer to spread out the repayments so that they are easier to manage and do not mind being in debt for longer or even paying a bit more so that they can make this easier.
Who are They for?
Once you have all of this information, you will then be able to identify who the loans are for. You will need to think about the features of the loan and then you will be able to consider what situation they will be used in and that will help you to decide who they are for. It is worth remembering that different people will need different loans in different circumstances. Therefore it is not about recognising a specific individual that the loan is for but a situation and then if you are in that specific situation you will know that is the right loan for you.