Banks offer several types of loans. Each of them is designed for its own purposes. Depending on this, the bank sets requirements for the borrower. The loan purposes can be very different: buying a new phone, car, apartment, fur coat, etc. Small personal loans can be considered on a scoring basis within 15 minutes, but to consider a mortgage, you will have to wait several days or even weeks.
Types of loans
It can be subdivided into subspecies: in cash, for the purchase of equipment, furniture, clothing, etc. Requirements are processed by employees in bank offices or employees at retail outlets. This is the simplest type of loan when the bank’s requirements for borrowers are the smallest. The common requirements look like this: work experience at least 3 months, age at least 18 years, permanent U.S. residence, proof of regular income.
The terms of personal loans usually range from 3 months to 2 years. You will only need to provide only an ID and a second document upon request (for example, a driver’s license).
A cash loan is inappropriate and is issued for any purpose. Due to the fact that personal loans are issued quickly, the amounts are small, there are increased risks of default (the borrower is assessed only by scoring), interest rates are quite high and reach 70% per annum.
This is a targeted type of loan for the purchase of a car. This type of loan can be obtained at a bank branch or in any car dealership through a bank representative. A car loan is issued for the purchase of a new car (to buy a used car, you will have to take a regular personal loan). Its main features are online application, minimum paperwork, intended purpose, the possibility of making a down payment, small rates. The interest rate on a car loan on average reaches 15-19%. A car is a liquid asset that can be easily sold. If the client cannot repay the debt, the bank can quickly realize the collateral and cover the debt.
It also applies to targeted loans that are issued for the purchase of real estate: apartments, houses, land, etc. This is the longest-term loan – the repayment period can last up to 50 years. This is due to the fact that the lender provides large amounts.
Many depositors cannot pay off the debt in a short time, so they pay slowly in small payments. The process of considering a mortgage application is rather complicated. The bank needs to assess the borrower’s solvency for several decades. Taking into account the difficult economic situation, constant crises, reductions, decrease in income, it is almost impossible to say for sure that the current financial condition will be the same tomorrow.
To get a mortgage, you will need to provide many documents. Mandatory documents include an ID, the second document (for example, driver’s license). The processing time can also take up to 1-2 weeks.
The bank will carefully check the credit history, assess all possible risks. If approved, the client must make a down payment. The larger the contribution, the better. It will mean that the client is serious about paying off the debt. For the period of payment of the mortgage, the property is transferred to the bank’s pledge, and if the borrower cannot pay, the pledge will be realized. Such an outcome is unprofitable for the client since he/she will remain at a loss or zero in the best case – the bank will sell the collateral at a reduced price.
Thus, the process of getting a mortgage is long and costly. The rates will also differ depending on the type of property, term, size of the first installment, and other parameters.
This type of loan can be targeted and non-targeted. The borrower provides the bank with collateral in exchange for money. The collateral can be a car, real estate (including commercial and retail premises), equipment, land, luxury and art items, gold (coins, bars), etc. The more liquid the asset is, the more willingly the bank will accept it as collateral.
For example, it is easier to sell a car (in case of non-payment of debt) than a valuable piece of art. When providing collateral, the client sometimes does not even need to bring income certificates.
The rates on collateralized loans are higher than on personal loans since the bank incurs additional costs here (if the collateral is transferred to the bank for safekeeping). A secured loan involves a large amount. The terms are shorter than those on first federal home loans because the collateral can lose value over time. For example, a car loses in value every year by 10-15%, so if in a few years the client is unable to repay the loan, and the sale of the collateral does not cover the debt, the bank will actually be at a loss.
The processing time for the application can take up to several weeks. This is due to the fact that the bank needs to check the collateral for cleanliness, draw up an assessment report, check the borrower.
In addition to banking institutions, lending services are also provided by numerous microfinance institutions. The number of MFIs operating in the USA is still quite large. Given the peculiarities of loans provided by such companies, they are often called microloans or payday loans. This is due to the fact that in most cases these are short-term, small loans transferred to a card. Another important feature of the work of MFIs is the extremely high-interest rate on the loans they provide.
This is a revolving type of bank loan, and you can use it endlessly, subject to the terms of repayment. A credit card is issued with one ID. It can be used to pay and return money during the grace period without paying additional interest.
A credit card will be beneficial when using small amounts and a short return period. Credit limits are not high, but if you do not fit into the grace period, the overpayment will be large. When choosing a credit card, you should be guided by the scheme of the grace period, the conditions for returning the used limit, additional bonuses (cashback), and other parameters.
Those who decide to acquire new knowledge can apply for a student loan.
To cover the tuition fees, a student loan is offered and is available to both full and part-time students in accredited bachelor’s, master’s and doctoral programs. Loan repayment must begin a year after graduation, and payments can be postponed for justified reasons.
In turn, a student loan is provided to cover daily expenses during studies, but only full-time students can use it.
Which loan to choose in Michigan?
It all depends on the specific situation. If you need a large amount, then it is worth considering a personal loan or a secured loan. If you have to buy real estate, then apply for a MI mortgage (for example, in Mortgage Center Michigan) because here it is possible to borrow for a long time so that the payment is small. If you need a small amount, you can use a credit card. If money is required constantly (in small amounts), then a credit card will be an ideal option – it will allow you to always have the required amount on hand and not collect a complete package of documents to apply for a new loan.