When reviewing a loan application, lenders typically consider factors such as income, employment status, and credit history to determine if someone is eligible for a loan. Some loans are easier to qualify for than others because they place less emphasis on credit scores and instead rely on things like collateral, short repayment periods, or proof of income. This article will help educate you on five common types of loans, as well as their benefits and drawbacks.

1. Payday Loans/Cash Advances

Payday loans and cash advances often have some of the fastest approvals and typically do not require a traditional credit check. The downside is that they often come with high fees and short repayment terms, which can make it difficult to repay them if you are not prepared. Because of this, payday loans and cash advances are usually best suited for short-term financial needs rather than long-term borrowing.

2. Title Loans

These are called title loans because to secure one, you need to have proof of a vehicle title. These loans are also relatively quick to approve, but the downside is that you can lose your car if you do not make payments. Since a vehicle is often essential for work or daily responsibilities, this risk is an important factor to consider before choosing a title loan.

3. Installment Loans

Installment loans have credit requirements, but these requirements are often lower than those of traditional bank loans or credit cards. They are also known for having predictable payments (assuming there are no fees or penalties). This structured repayment schedule can make personal installment loans easier to budget for over time. The Consumer Financial Protection Bureau, or CFPB for short, is a good financial resource and has more detail on installment loans here.

4. Credit Builder Loans

These loans are for exactly what the name implies—helping borrowers to build or improve their credit history. With low approval barriers, Credit Builder loans can benefit you in the long run by reporting on-time payments to credit bureaus. They are often used by individuals who are new to credit or working to rebuild their credit profile. It's important to note that by not making your payments, this would still hurt your credit, making this type of loan useless.

5. Pawn Shop Loans

Pawn shop loans are secured by valuable items that are left with the pawn shop as collateral. Because the loan is based on the item's value, a credit check is usually not required, and approval can be very fast. However, if the loan is not repaid, the pawn shop may keep the item instead of pursuing further payment.

 

There are clearly many different types of loans. Income and credit history are two of the main factors that lenders look at before approving someone. If you aren’t eligible for your ideal loan, there are ways to boost your credit. The best way is to ensure your bills are paid on time. Autopay is there for a reason! Use it for anything you can. If you still need money and want to improve your credit score, the Credit Builder Loan might be perfect for you. A good credit score will help you receive better loan terms. These can be extremely useful (and save you lots of money) for those big budget items, like a car or a place to live. Whatever loan you take out, be sure to understand the loan details.

If you’re looking for more info on topics like this, view our full catalog of financial blog articles at https://www.cashstore.com/blog.