Type of Loans
Loans come in many forms and each one with varied terms and conditions. Loans could be as simple as borrowing money from a relative or friend to as complicated as loans from financial institutions and lending companies such as mortgages, payday loans, personal loans, business loans and student loans.
But regardless of the type of loan, each one has its conditions for payment. These conditions are regulated by the state and federal guidelines for consumer protection to ensure that borrowers are safe from excessive interest rates. Guidelines also state all the important information about a loan product such as the loan length, and the terms to prevent confusion.
What are the types of loans available?
Loan types vary according to their use. Here are the most common types of loans:
Auto loans – auto loans will help borrowers afford a car or any vehicle. This type of loan is tied to your property and you risk losing your car if you miss payments. Auto loans can be provided by a bank or conveniently distributed by a car dealership.
Cash advances – this is a short term loan that is usually against your credit card. You typically make a cash advance by taking the card to your bank or an ATM service to get your cash. Another form of cash advance is by using your payroll as collateral.
Consolidated loans – this means to consolidate or to place all your outstanding debts in one account so that you can make fewer monthly repayments and enjoy reduced interest rates. The most common forms of consolidated loans are second mortgages or personal loans.
Home equity loans
Home equity loans – this is a type of loan if you have equity in your home. You can use this to pay for home renovations, consolidated debts and to pay off smaller loans such as student loans.
Mortgages – this type of loan is available from a bank so that borrowers can buy homes. This is tied to your home which means you can lose your home if you fall behind payments.
Payday loans – this is a short term loan with high interest rates. This is a solution if you need to pay something that can’t wait till next payday. There are only a few requirements for payday loans and typically, a borrower’s proof of employment and paycheck are being asked by a lender to confirm repayment of the loan.
Personal loans – this is a multipurpose loan that can be used for paying off interest on other types of loans, for paying credit card debt and so many more. You need a good credit history to be approved for a personal loan.
Student loans – this is a loan that is used to cover expenses for college education. There are federal and private student loans but federally-funded loans have lower interest rates and easier repayment terms.
Veteran loans – available through the Department of Veterans Affairs to help veterans and their families. The VA becomes a co-signer and vouches for the borrower. Loans are higher and have lower interest rates too.