We may need additional funds for varied purposes. Our income may not be sufficient to take care of those needs. It is in such situations that the need for loans may arise. Presented below is a discussion on the different kind of loans you can get and how to use them wisely.
Different kinds of Loans available
- Bill-pay loan: There are many of us who live from one paycheck to another. Hence, there can be occasions when we may not have sufficient money to pay the mobile phone bill, utilities, etc. This is when you can take a bill-pay loan. You can avail of a bill-pay loan as long as there is consistent deposit of paychecks into your bank account, you have made regular payments to the mobile company and others, and there is data that shows you have utilized your payments, etc. Another very important aspect of a bill-pay loan is that borrowers need to agree with the lender to an automatic debit from their bank account for repayment of the loan. The lenders thus mitigate their risk. They also make money in terms of fees, interest, and other charges.
- Insurance premium payment loans: Insurance premiums for your car can be very costly. Hence many people take loans from insurance premium finance companies. Such a loan comes with an upfront payment of a part of that loan and then the rest of the loan is paid out over the next months. Thus, if a burrowers defaults on payment of the loan, the lender can cancel the insurance policy and take the balance of the insurance premium money as a refund. The lender thus carries very low risk. The interest rate on insurance premium financing loans is lower than other kinds of loans.
- Tax refund loans: Borrowers who are expecting a tax refund, but are in need of emergency money, can go for a tax refund anticipation loan. The lenders will check if the tax return was properly filed, verify that they (the lenders) can take the refund after it being issued, and then issue the loan. In case of non-payment of the loan, they can take the tax refund money. The collateral for the loan is the US Treasury check and thus the lenders take very low risk.
- Structured settlement loans: You can go for a structured settlement loan if you are expecting a stream of income in the future, but require emergency cash. Such income can be in form of annuity, a court settlement, etc. The lender will offer the loan after verifying the future payment and making sure that they can secure it in case of non-payment of the structured settlement loan.
Things to remember
- Financing of insurance premiums is a good option as long as you make timely repayments. Failure to do so can result in steep rise in interest, fees, etc.
- Bill-pay and payday loans come with high interest rates and come with the potential of cornering you into a debt trap. Be careful about taking out such loans and ensure that they are repaid on time.
Thomas is a professional writer on personal finances. Every day I write for the Planet-loans.com website.