There are many situations you’ll face in life in which you’ll need to rely on borrowing to help you manage financial emergencies. Fortunately, there is a wide range of loans, and each type of loan is intended for a unique purpose. By taking out the right type of loan, you may find it easier to repay the loan faster. Here are a few examples of loans that you can use to help you deal with a sudden expense.
Personal Loans
A popular type of loan is the personal loan because there are few restrictions on how it can be used, and the terms can range from 24 months up to 84 months. A personal loan can be used for medical care coverage, debt consolidation, big-ticket purchases, vacations, or weddings. The two common restrictions on this type of loan are that they cannot be used to finance a college education, and they can’t be used to finance criminal behavior. These loans also come with lower interest rates, making it easier to repay them within a short period.
Home Equity Loans
If you own a home and have built up equity by making on-time payments consistently over several years, you may qualify for a home equity loan. This is also called a second mortgage. It allows you to borrow up to 85% of the equity you own in your home. The loan is paid to you in one lump sum, and you’ll have between five and 30 years to repay the sum.
Small Business Loans
A small business loan can help you finance a startup or use this type of loan to finance upgrades to an existing business. Any business with fewer than 300 employees can qualify for a small business loan. This includes everything from hair salons and landscapers to freelancers, such as writers or accountants. Getting a small business loan is more difficult than getting approved for a personal loan, but it’s often the best option for business owners and entrepreneurs.
Your goal should be to borrow money only when you want to use the loan to improve your credit score. Otherwise, you should rely on your savings as much as possible. You can build up a large savings fund over time by depositing 10% of your earnings from each pay period into a high-interest savings account. This will give you the financial security you need to handle most emergencies as they come along.
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