Many people experience financial issues from time to time and need a line of credit to help meet those pertinent financial needs. Most loans of significant amount require collateral of some type, especially when the borrowed funds are being used for a major purchase such as a vehicle or home.
But, there are also other instances that require a credit line that is not necessarily as excessive as a major purchase loan. This is especially true when there is no applicable collateral to secure the fund transfer. There are basically two types of loans that may work well in these situations. Those two types are signature loans and short-term loans. Here is a discussion of the differences between the two and how repayment plans work, along with an explanation of how to apply and where to apply.
A signature loan is a type that is issued by a bank or a credit union. Knowing where to apply and how to apply is often easily determined, but not all applicants will want to use their regular lending institutions. A personal loan of this type is secured only by the signature of the applicant, hence the name, as there is no collateral involved. Repayment schedules can be similar to a collateral loan, but the repayment schedule is almost always a much shorter payoff program.However, the relatively short repayment schedule does not necessarily make the transfer a typical short-term loan. Credit checks are almost always conducted for signature loans, and a bad credit score can make a significant difference in regards to a loan approval. One of the benefits of a solid credit report is that there will be no cosignatory requirement in most instances, but not always. It is important to be prepared for this request from the lender.
Short Term Loans
A short-term loan is much different from a signature loan, even though the applicant will be required to sign paperwork stipulating the repayment schedule. These loans are not issued by banks or credit unions, instead of being funded by a private loan company. Short term loans are usually repayable within 30 days or significant penalties will apply. Sometimes arrangements can be made for a 60 to a 90-day extension, but those are rare occasions. Most of these loans are 30-day repayment terms. These loans are also commonly referred to as payday or cash advances, and a personal check is provided as security for the loan. If the check is not covered and voided within the 30-day time period, the lending company can take the check to the bank upon which it is written when the loan becomes payable.The credit score of the applicant does not apply for a short-term loan approval, but failure to meet the terms of the agreement can still result in collection actions such as a wage garnishment and an outstanding debt claim that can affect a recipient credit report. Cosigners are also normally not required in a cash advance loan agreement. Additionally, a good standing with a private loan company only offering 30-day loans is normally not an acceptable credit reference with a bank or credit union when credit applications are filed at a later date, even when the applicant is in good standing with the short term lender.
Understanding Your Loan Options
It is important to remember that applying for a personal loan of any type is a serious decision, and knowing the differences between the types of loans available is always advisable. Each type of loan has certain benefits, which can often impact the particular decision on where to apply and how to apply for the right loan in the given situation. Maintaining a good credit report after the loan is issued is important for everyone, so thinking the process through beforehand is always a good first step.