Differentiating Loans
Until I went to college, I’d never taken out a loan in my life. Had I paid on loans? Definitely. I’d had several cars (no, I did not wreck them all), but all of them were in my mom’s name. Finally, I went to college and had to deal with loans. Oh no!
A lot of people go into credit card debt, but how many of us really know anything about being in debt to loans? Do you even know how to take out a loan? Today, I’m going to briefly talk about a couple different types of loans and how you go about receiving them.
Before you apply for any type of loan: Check your credit score and make sure that there are no errors that need to be settled. Also make sure you have some sort of checking or savings account; this helps your credit as well. Be sure you can fit loan payments into your budget without straining it a lot.
College Loans- Out of all of the loans we’ll cover today, these are probably the simplest to obtain. Why? Because you get most of them approved by the Free Application for Federal Student Aid (FAFSA). Stafford Loans and Perkins Loans are both based on need somewhat, and then many of the other loans will use that same information to approve you for their loans.
Home Loans/mortgages- Most of the rest of the loans I’ll discuss today require you to go to your local bank or credit union. Out of all of these loans, these ones will be the most substantial, thus making it more difficult to get them (higher risk = less chance of you getting this type of loan without a good credit score). Almost always you need to have some sort of cosigner (most times if you’re buying a home you’re married, so that’s usually covered). Your credit needs to be both consistent and a decent score. Your loan officer will assist you in the decision making process.
Car Loans- Car loans make up most of the loans taken out in a year (outside of student loans). Because they are lower risk, it’s more common for someone to receive a car loan before any other type of loan. These loans are less likely to require a co-signer (but in some cases, especially if your credit is borderline, you may need one). You can either get these through your bank or lease through the dealership you are buying your car from.
Small business loans- The most complicated type of loan to get is the small business loan. Not only do you have to have decent credit and a co-signer to get the funds from these loans, you also need to have a business plan that is approved by the bank you are applying for your loan through. In the case of adding on to a business that is already established, you must have a viable reason for you to need the additional funds. Many times, you need to have really thought through the purpose and plan you have for your business or you will be denied.
I’ll talk about these more in depth over the past couple of weeks, but I wanted to explore the basic differences between all of them before jumping right into discussion about each. Until next time, spend smart, save smart!
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