An unsecured personal loan is a loan that is not secured by any collateral. Credit cards are the most common example of unsecured debt. The lender makes the loan based upon the reputation and credit report of the applicant. It is very rare to find a lender to approve an unsecured loan for a unworthy borrower. They will not want to take the risk without a track record to work from. These loans help people who aren’t willing to put their personal assets at risk, but require money for many different types of debt.
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A single payment loan is a loan at which the entire amount is due at the end of the term or at the time of the loan’s maturity. This type of loan is a term secured commercial loan to a business person or company that has a fixed maturity, often three to 10 years, and is repaid with interest with one cumulative payment. If the single payment loan is in the form of a line of credit, the funds are drawn down shortly after the agreement is signed.
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A secured personal loan is a loan or credit transaction in which the lender acquires a security interest in collateral owned by the borrower and has the right to foreclose or repossess the collateral should the borrower default. The terms of the transaction between the lender and the borrower are determined by a contract or security agreement. For instance, a person who purchases a vehicle on credit would have to surrender that vehicle to the lender if the borrower failed to make payments on the loan.
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A refund anticipation loan, or RAL, is a short term cash advance made against a customer’s anticipated income tax refund. The loans are offered at high interest rates that range from 40 to 700 percent APR. Refund anticipation loans speed up the refund process by as little as one week, compared to what consumers can expect by filing online and having their refunds deposited directly into their bank accounts.
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A payday loan is a loan that is taken out to solve a temporary cash flow problem or shortfall that can arise in between pay periods. For instance, a borrower may want a payday loan for anything from groceries, to bill payments, to mortgage payments and more. A payday loan, a type of emergency cash loan, is more risky for the lender than the usual loan and is more expensive to borrowers as a result. These loans are only for borrowers who can repay the loan immediately. Depending on the lender, a payday loan can be obtained by people with bad credit or people who have had difficulty getting approved for loans and mortgages in the past.
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A line of credit is a loan in which a borrower is approved for instant access to a certain amount of money that is kept in a line of credit bank account. Lines of credit offer flexible financing for a variety of different borrowers and are attractive to different people for different reasons. Usually lines of credit can be obtained for amounts anywhere from $5,000 to $50,000 and offer very competitive interest rates based on prime rates. The flexible options provide borrowers with total financial control.
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An interest only loan is when the borrower only pays interest on a borrowed amount in monthly payments for a fixed term. At the end of the term, which usually lasts from five to seven years, the borrower must refinance, pay the balance in a lump sum, or start paying the principal. These loans are mostly intended for affluent borrowers, including those who have income in the form of infrequent commissions or bonuses, who expect to earn a lot more in a few years, or who will invest the savings on the difference between an interest-only loan and an amortizing loan and are confident that the investments will make money.
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An installment loan is a loan repaid with a fixed number of periodic equal sized payments. Often, borrowers can obtain secured and unsecured installment loans. Installments loans may be used for new car loans, used car loans, recreational vehicle loans, boat loans, horse trailer loans, motorcycle loans, home equity loans and personal loans. Terms range from 50 months to 180 months and interest rates can range from six to 12 percent.
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An emergency cash loan is a loan that is taken out to solve a temporary cash flow problem or shortfall that can arise in between pay periods. For instance, a borrower may want an emergency cash loan to pay for groceries, bill payments, mortgage payments, or even unexpected medical expenses. An emergency cash loan carries more risk for the lender than a usual loan and therefore carries a higher interest rate for the borrower.
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A debt consolidation loan is a personal loan that allows borrowers to consolidate many debts into just one debt. For instance, if a borrower has a line of credit, a couple of credit cards, and a car loan, the borrower can consolidate all the debt into one line of credit or one credit card. The borrower only ends up paying one payment each month instead of four. Borrowers who take advantage of debt consolidation will access a lower interest rate than the rate being paid on the credit cards and the lower rates will help the borrower to pay off the credit card debt and reduce monthly payments. Household budgeting becomes much easier since there is only one monthly bill to pay instead of many.
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