Funding Assortment Serves Diverse Needs Most people have heard the phrase “creative financing”, but pay it little mind. It is a revealing notion; however, aptly characterizing the way the lending business works. Contrary to popular belief, there are hundreds of loan products on the market, made available for very specific purposes, as well as general financial needs. Qualifying is the hard part, which is why some borrowers require “creative” loan options to cover all their funding demands. Fortunately, banks, credit unions and other lenders offer a range of loans services, to meet every need.
Loans can be distinguished from one another in many ways, but most fall into two distinct categories – those which are secured by some form of real property, and others that do not hold tangible collateral. Each type has its advantages, and some are in fact issued for very specific purposes. Home mortgages, for example, represent one form of specialized lending, conceived to help families secure property. Other examples include equity loans, personal lines of credit, payday loans, business financing and a host of additional opportunities for qualified borrowers.
Secured vs. Non-Secured Loans
Loans are issued by banks and financing companies for the purpose of generating a positive return. As a result, risk is at the center of each loan interaction, guiding everything from interest rates to eligibility. And while each type of financing comes with its own set of requirements, the formulas used by lenders to approve loans all account for risk, in one way or another.
Loans with the lowest level of risk are those tied to tangible assets. When risk is offset by solid collateral, lenders can extend low rates and favorable contract terms. Home financing, for example, extends for decades, as buyers slowly repay mortgages. But because the loans are backed by the real estate financed, risk is lower than other forms of financing. When a mortgage holder defaults, home ownership ultimately reverts to the bank or mortgage company holding the debt. It is not a desirable outcome for borrower or bank, so lenders would prefer to issue loans repaid according to terms. But this common example of secured lending illustrates the benefits of collateral in a worst-case scenario of loan default.
Car loans are another form of secured lending; based on the premise a lender can legally repossess a car at any time a borrower fails to keep current with repayment. And for securities holders and those with gold reserves, another unique form of financing considers the value of these assets, and grants loans based upon the collateral’s worth.
Short-Term Personal Alternatives
Individual loans serve a variety of funding needs, from tuition to travel. This form of unsecured financing relies on income and credit history to qualify applicants, rather than using bonafide collateral to offset risk. Since loans are approved using credit scores and employment success, the best terms and conditions are reserved for applicants with the highest ratings. And because any form of unsecured loan carries risk for lenders, interest rates and loan conditions reflect the added stakes of lending money without collateral.
Short-term loans are generally limited in size, giving borrowers realistic repayment windows. In addition to seeking conventional personal loans, those with immediate funding needs turn to payday loans, which don’t require credit checks. These straightforward loans are issued to applicants able to prove their income by showing pay statements. Once approved, money is granted swiftly, to be repaid upon receipt of the borrower’s next paycheck. The loans are limited in size, but provide the advantages of convenience and immediacy.
Regardless of where money’s needed, banks and other lenders stand ready to furnish funding. From conventional mortgages to creative short-term funding options, UK borrowers have varied alternatives at their disposal. The key to selecting the proper type of loan is matching your need to the most-suited solution, before making repayment commitments.