M&M Finance

There are many types of loans available and it is important that when you are considering borrowing money that you choose the right type of loan. What you pick may depend on how much you want to borrow, the purpose of your borrowing or the repayment term that you would like.

Loans for specific purposes

If you are buying a property then you will need a home loan and if you are buying a car then an auto loan. These are quite obvious but with other loan types it is not always so obvious. It can be tricky knowing what might be the best. You could ask at your bank and they will be able to guide you. However, they may try to guide you into a loan that they have available as they will want you to borrow from them. Although this is okay if you want to borrow from them, I you want to look at options beyond your bank then it might restrict you. Another option is to pay for some independent financial advice and that will give you options beyond your bank, but you may not be prepared to pay for it, especially if the amount you want to borrow is small.

Loans for specific amounts

It may be that you have a specific amount of money that you want to borrow. Even if it is not that specific you will still know whether it is a few hundred dollars, a few thousand or more. Some loans only lend small amounts of money and other lend more and so you will need to think about how much you need and which type of loan will suit that. You may find that some are more flexible with the amount that you can borrow too, such as if you have a credit card you can use it for any amount up to the credit limit whereas if you get a personal loan then you will be leant a specific amount and no more.

Fixed vs variable rate

Some loans have a fixed rate of interest where you will always pay the same amount of interest. This might be fixed for the whole term of the loan or it might be fixed for part of it or it might be variable and then can change. Some people prefer to go with a fixed rate as they will then know exactly how much they will be paying each month. This can provide security as you know that it will be an amount you can afford (hopefully!) and there will be no nasty shocks if the rate suddenly increases. Some people prefer to go with a variable rate. These can be cheaper, at least initially and if the rates go down then they will pay less, something which will not happen with a fixed rate. There is a risk that the rates will go up of course of you choose a variable rate and it is important to be confident that you can cope with this. The rates will normally change as the prime rate changes, but it may be that they are more likely to go up rather than down as the bank may increase their rate when the prime rate goes up but not reduce the rate if it goes down. Unless there is something in your agreement with them stating that this will have to happen, then they can change it when they wish.

Repayment terms

It is most important to look at the repayment terms of the loan. Many loans will have a monthly repayment schedule where you will be expected to pay a certain amount. If this is the case with the loan that you are considering then you will need to find out how much that is and make sure that it is an amount that you will be able to manage. You also need to think about whether there is a chance that it might get dearer too. If you have a variable interest rate then it may go up if the prime rate increases or it may just go up anyway if the lender decides to increase it. You need to be confident therefore, not only that you will be able to repay it now but also if the rate goes up. You may prefer something that is a bit more flexible so you can repay small amounts when you do not have much money and more when you can afford it. If you pick a credit card then you can do this.

It is important to have an understanding of the different loan types so that you know which will fit into the right categories for you. This can take some time, but once you have a general understanding of the similarities and differences then you will be able to see which fit in best with what you are looking for. It can be time consuming to do this research but it will be worth it when you get a loan that is most suited to your needs.