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What You Should Know About The Many Types Of Loans
You will find many types of loans, and based on your credit score and history and also the purpose of the loan, you should be able to discover a lending product to fit your needs.
One of probably the most common types of loans is called a secured installment loan. These types are used to finance higher priced items such as homes and cars. A standard bank or credit union will lend you the money that you need to purchase the home or automobile, and then over a period of time (normally five or six years for cars and thirty years for homes) you'll make regular payments or installments.
Typically, the installments will be the same amount of money and due at the same time each and every month, and by the end of the loan term, you will have paid back the loan and the interest. You will discover, however, exceptions to this type of loan structure particularly in the mortgage industry. Some home loans are set up so that the lendee pays a regular amount every month for a short time period like two to ten years. During this time frame, they just pay interest on the loan, then when the term is complete, they owe the balance which is called a balloon payment.
This kind of home loan is only feasible when home prices are constantly rising because if the house price falls then the borrower's balloon payment is going to be considerably more than they will be able to obtain by selling the house. There are other vagaries in the mortgage market like ARMs, or adjustable rate mortgages, where the loan company's interest rate changes two or three years into the loan period.
Another loan type is an unsecured loan. These include money that is borrowed for much more intangible purposes which means that these types of loans are not backed up by an asset like home loans or car loans. Although a number of debt consolidation loans are set up like installment loans as far as repayment terms are involved, most unsecured loans are considered revolving debt. That means that as long as the relationship between the provider and the borrower remains friendly and the account stays open that the borrower can repay and reuse their credit according to his or her personal discretion. These particular loan types include credit cards, bank overdraft accounts, as well as bank lines of credit. Typically, these products have higher interest rates as opposed to the secured loans discussed previously.
Using characteristics from both of the above categories, a HELOC or home equity line of credit, is a revolving debt that works a lot like a standard line of credit but is guaranteed by your home equity which will be the market value of your home minus the remaining amount due on your home loan.
Alternative loan types target borrowers with bad credit and include payday loans and cash advances which provide consumers fast cash for a really short loan term with extremely high interest rates.
Those are the basic types of loans that are currently available in the current marketplace. Many businesses offer many of these loans in some form or another while other businesses specialize in one or two loan products. Before trying to get a loan, talk to a trusted advisor or professional in the finance industry to be sure that you are getting the very best loan for your needs.
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