It comes at a point in your life you feel like you are ready for something bigger, the next chapter of your life. It could be building that house, it could be having a baby, or it could be buying that car or starting that business. Or it could be your big day, your wedding.
But sometimes your dreams and aspirations do not match your bank account. What are you left to do? You need to take a loan. But first, before you think of taking that loan you need to learn all that you can about them. So that you can make an informed decision and not find yourself in trouble.
Types Of Loans
There are some businesses that you can be able to start with little to no cash. But there are some businesses that need that financial push. Sometimes you may have saved up that cash but sometimes the cash you have still does not move the needle. And you need to take that loan, but you need to decide which kind of business loan you need to take as there as several as well.
How To Start A Business Without Money
Working Capital Loans
These are short-term types of loans that are used to make the business grow. This covers the day-to-day expenses of the business like stock purchase, payroll, rent, debts and advertising. This type of loan cannot be used to buy assets for the business. And they are tied to the owners’ credit history.
These are also short-term loans based on your existing invoices. If you sold items based on credit terms but have not been paid yet and you need the cash urgently. You provide the existing invoices to a third party who then provides you with the cash you need at hand and collects on the sale from your customer.
Business Term Loans
These are the most common types of business loans, you get a lump sum of money which you pay back at regular payments with a fixed interest rate. This type of loan will allow you to purchase assets and new facilities and the like.
The interest ranges from 7-30% based on your credit history. Your credit history also determines the lump sum amount that you would qualify for. This type of loan takes a few years to pay back based on your business performance.
A home loan or mostly referred to as a mortgage is a loan given by a bank, mortgage company or any other financial institution to assist in the purchase of a home. The home remains the property of the lender until the loan is completely paid off.
So the title is kept in the name of the lender. And later the title is transferred to the name of the owner. When the final payment of the loan has been made and any other terms of the mortgage have been met.
Since this is usually a huge loan, it takes around 10-30 years to complete paying it off. And you need to make the payments as per your contract because if you do not, the lender has the right to foreclose your home.
To be able to apply for this loan, you need to provide information about your financial history. So that it can be determined if you are capable of making the monthly payments. The next step is to figure out how much you can actually borrow, then fill in the official mortgage application.
After that, you check out the home within your budget and you make the loan commitment. This is the agreement between you and your financial institution on the terms of your loan. It could be a lump sum or a certain limit as needed.
The borrower and lender make the final agreements on the terms of the mortgage. And the lender puts a lien on the home as collateral for the loan. This is to ensure that the debt is paid if not, the lender has the right to foreclose the home or to take possession of it.
This must be the sweetest type of loan. This loan as the name suggests, is used for personal obligations, these are but not limited to: Household expenses, medical emergencies, vacation, you just had a baby, you want to revamp your home, these are just but a few examples. But as you take this loan you need to be certain as to why you are taking this specific loan. Because you will still need to pay it back.
Does it have a Return On Investment or you are just taking it just because you want to? Whatever you are using the loan for, is it really necessary, if yes then take the loan. If not then you are better off without that specific loan. Because you could end up destroying your credit history for a loan that is not really worth it.
These are the kind of loans you get to finance the purchase of a car. It could be a car you need for doing business, or it could be a car for your own personal use. You can get this type of loan from a bank or the dealership you are buying the car from, or a lender. In all these financings you need to put a down payment either by trading in your older car or with cash.
Then the lender does a valuation of the car you would like to get, at a cost that you would have to foot. Then offers to give you a percentage of the value of the car in financing. Usually 50% but if you have a good credit history it can be up to 70% financing.
A tracker is put in the car just in case you default on your payment. They can track you down. This type of loan takes about a year to complete paying it off. And if you can do it in a shorter period, the better.
These are the type of loans that are used to finance one’s education. If you apply for this loan and qualify to get it, the money goes directly to the school. But if you qualify for an amount higher than the tuition, the excess is put into your bank account.
Your situation in paying for your tuition right now is used as a basis to determine how much you can qualify for. For example, if you have existing family members who can help in payment of the tuition or you do not. You start paying back the student loan, once you are done with school and get a job.
Credible Loans Institutions
These may be the most preferred institutions to get a loan from. One is because they use your credit history to determine how much you can get. And their interest is usually the least out of all the institutions. the best part they are reliable. As long as you meet all the requirements, you can get the loan you need, at any time you need it.
These are preferred by small businesses or individuals, to set up something that is a little far off from what they can get at the bank. You usually have guarantors to guarantee you the loan. Just in case you default on paying the loan, they are the ones who pay for the loan. The Sacco will never suffer the loss of bad debt.
These are apps owned by private companies or agencies that give you a loan. These types of loans are usually small loans and they are unsecured. The qualification for this type of loan together with the amount you qualify for is determined mainly by your credit history. The better your repayment history the more the amount you can borrow at a time, but if you default even once, you can be barred completely from ever taking the loan.
These are very informal types of loans, as money pools are formed by friends and family who come together and contribute a certain amount of money towards a particular cause. So in that money pool, you could ask for a small amount of money as a loan if you really need it. These also depend on your credit management and how well the people in the money pool trust you. That is used as a basis for how much you can borrow.
What To Consider
As you are taking that loan, there are several things that you need to consider:
Are you able to afford the monthly payments you need to make, on top of your existing bills that you need to cover? Because if not you could be hurting your credit history and ruining your chances at a loan in the future that you will really need.
Are you able to handle the penalties applied if you ever default on a payment? Because once the penalties start coming in, you will feel like you are in a sinking hole. Before you clear this, another has hit you, so you need to be able to handle the heat just in case this happens.
Is the interest rate of the loan you are taking favourable? or is it too much for you? Are you able to pay back the principal amount with the interest comfortably or is it taking a toll on you?
Do You Really Need A Loan?
Do you really need that loan or do you just want to? Because if you do not really need it or using it to do something that will have a return on investment and it is taking a toll on you financially, then you should consider not taking the loan in the first place. Wait till your finances are better then you can consider taking the loan then.
In all entirety, loans are needed in this lifetime, but you need to consider all your options and reasons for taking the loan before you plunge in. Money is sweet to have, even if it is a loan, but consider the repayment part and make sure you can handle it right now, or you should give your future self a better chance by not taking it right now. Make an informed and mature decision concerning loans because they are not a joke.