Looking for a loan? Read on to learn the different types of loans you may qualify for.
8 Types Of Common Consumer Loans
Loans are used to finance specific sums of money for a set time but all are not the same. There are many types of loans and each comes with unique characteristics. Loans are given by banks, credit unions, businesses and even individuals and can be exclusively granted and/or limited in scope. The reason there is so much variation is because each loan if for a specific purpose with terms calculated based on a number of variables including but not limited too credit score, length of term and interest rates. Regardless, all loans are regulated in some way by the country in which it was given for the purpose of protecting consumers. Read on for a quick look at some of the loans common to the market today.
- Student Loans – This is perhaps the most common loan in the financial world today. These loans are intended to pay for tuition, supplies and living expenses for students and typically come with lower interest rates and friendly terms. Student loans can come from the private sector or be funded by government.
- Mortgage – Mortgages are loans issued to home buyers to cover the cost of housing that can not be paid for up front. These loans typically have longer repayment periods and the lowest overall interest rates. A mortgage is a “secured loan”, that is, the house for which the loan is issued is used as collateral for the loan and can be foreclosed upon if not paid. Mortgages are typically issued by banks or other institutions set up specifically for this purpose. Norwegian loan seekers have a wide variety of sources to help them and must even be approved before they begin the search for a home.
- Home Equity Loan – This is a loan against the equity in your home. Equity is the amount of home that you actually own, it is the difference between the value of the home and the amount of principle left on your mortgage. Qualifying home owners can open a revolving line of credit with low rates and use the money for repairs or upgrades to the house, consolidating credit debt or other need.
- Auto Loan – An auto loan is similar to a mortgage in that is issued to pay for an automobile that can not be paid for up front. These loans can come from a bank or the auto dealer themselves although those usually have higher interest rates. Also like with a mortgage, the vehicle can be repossessed if repayment is not made.
- Personal Loans – Personal loans are made directly to the consumer with no specific purpose. These loans can be used to pay down or consolidate debt, or to pay for other needs that can not be financed in another way. Terms depend on personal credit history and may require collateral or high interest rates.
- Small Business Loans – Small business loans are issued to the owners or prospective owners of small businesses for the purpose of starting or financing business operations. These loans usually come from a government agency like the Small Business Administration in the US. In the European Union there are several outlets for small and medium sized business loans from the European Commission.
- Rent To Own – Rent to Own, or appliance loans, are small loans with low rates and long repayment periods meant to finance the purchase of large household items with years of expected use. These include stoves, refrigerators, TV’s, mattresses and washer/dryers.
- PayDay Loans – Payday loans are short term loans intended to provide quick cash between paychecks. These loans typically have the highest interest rates of any loan, and the shortest repayment periods. These loans can be lifesaving source of money but also tend to lock lower income borrowers into a never ending debt spiral.
Plan For The Best, Prepare For The Worst
While it is wise to plan for the best, it is also advisable to prepare for the worst when seeking a loan. You never know what might prevent you from making a payment, falling behind on a couple of payments or even defaulting. For this reason it is a good idea to research the terms and costs of such an event. Many loans will forgive a late payment if you call them and explain the situation but an unresolved situation in which payments are constantly late may result in a poor credit report and affect your future ability to get financing. An outright default could result in aggressive collection tactics, repossession or foreclosure.