As the world emerges from the financial impact of the 2020 pandemic, people worldwide are adjusting to rapid market changes. Interest rates and consumer prices are rising, and product selection in stores can be scarce due to ongoing supply chain issues.
Where once “tough times” simply meant not being able to pay bills on time, the struggles of today often involve having insufficient funds to feed a family or put gas in the car. To provide relief, banks and online lenders can provide emergency loans to provide relief. These loans come in different forms. Here are four of the most common:
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Personal installment loans
This broad term describes loans provided to individuals with the understanding that the loan balance will be repaid in equal monthly installments. Personal loan interest rates are typically fixed, and applying for a personal loan online is one of the easiest ways to get one. You can also visit brick-and-mortar bank and credit union locations if you prefer to apply in person.
Personal installment loans can be secured or unsecured. A secured loan is one where the bank asks for collateral as a guarantee that the loan will be repaid. An auto loan is a secured loan. The car acts as collateral. With an unsecured loan, no collateral is required and loan approval is based on the applicant’s credit score and history.
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Personal line of credit
A personal line of credit may look like a personal loan in some ways, but it works differently. In this case the lender approves the borrower to access an assigned credit line which equals a set amount of money. The borrower doesn’t need to use all of the line of credit at once. As the borrower pays back the money that is used, the process can be repeated up to the available amount of the line of credit. Typically, the interest rate for this type of loan is variable and the rate the borrower pays is based on when the borrower draws down, i.e., uses, the line of credit.
This type of loan may be well-suited for self-employed individuals with irregular income streams or for project-based spending. If you’re a homeowner, you may also qualify for a home equity line of credit, commonly known as a HELOC. Unlike a personal line of credit, a HELOC is a secured loan. The money is borrowed against the equity of the house, making it more like a second mortgage.
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Short-term payday and title loans
Payday loans are short-term loans that can be obtained from either online or brick-and-mortar payday lenders. The applicant needs to provide proof of income and their bank routing and account numbers. The funds are transferred into the account upon approval and then payments are withdrawn from the account via direct debit on the due date, which is usually the borrower’s next payday.
Title loans are like payday loans because they’re short-term and have high interest rates. This type of loan is secured by the title to a car, boat, RV, or motorcycle. In the event of payment default, the borrower surrenders ownership of the vehicle to the lender. That makes title loans a risky option, but they are an easy way to raise funds quickly.
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