Understanding the Different Types of Loans: A Comprehensive Guide

Every loan is different, but some loans are more common than others. Here's a guide to the most commonly used types of loans to help you understand what to look out for when applying for an unsecured or secured loan.

Loans for personal needs

These include student loans, mortgages, car loans, etc. Unsecured loans - Commonly known as credit cards - Are unsecured in nature and can be applied against any collateral, such as homes, cars, or other assets with which you can purchase another asset, such as real estate or stocks. Secured loans - Credit cards may not be unsecured (and they usually are not). When it comes to secured loans, you'll have to provide collateral such as your home, car, or even a line of credit. For example, if you need $10,000 quickly, then a standard credit card might be just fine. However, if you have a lot of debt to pay off over time, then a line of credit will likely be necessary. Home equity loans - These are a kind of secured loan when you borrow money from someone else, rather than simply lending money to yourself. This means that you're providing security for the lender, making you feel like you're investing in their business instead of themselves. You may also want to consider refinancing if you're already looking at repayment plans such as interest-free loans, term loans, or revolving lines of credit. Personal loans - A large number of people use personal loans to consolidate debts. They can include things like auto loans, student loans, medical bills, etc.

The typical types of loans include:

Personal loans - Often referred to as student loans, these are short-term loans meant to cover expenses for specific educational programs. Typically, they're given by banks to individuals who have good financial standing and/or stable employment and want to keep up with the education costs. While there are a lot of options available on lenders' sites, one thing should always be clear, no matter what type of loan you may be considering: Make sure the lender has good terms and conditions and that you can afford the fees associated with each loan, including any penalties or rates. Consumer loans - Used by consumers to repay past-due balances. Although this is often considered to be a consumer financing option, it doesn't necessarily mean it is. Consumers often use them to make payments toward their monthly bills, so they aren't technically taking advantage of this type of unsecured loan. Business loans - Like personal loans, businesses can use this form of unsecured loan to cover various expenses, such as buying property, paying employees, etc.

Unsecured loans

Many times, you won't have to worry about how much money you need to borrow in order to obtain a loan since unsecured loans do not require collateral. Instead, you're able to purchase goods and services without having to carry a balance or even have to show proof of income. In fact, unsecured loans are typically easier to qualify for because lenders don't require proof of income or assets, nor will they ask about your credit history. There are several kinds of unsecured loans available to choose from, including credit cards, personal loans, loans for health care, personal lines of credit, investment loans, tax credits, etc.

Secured loans

Most people think of loans as being all about securing the funds that you put into a bank account. But did you know that a secured loan could be the best option? A secured loan is essentially a way in which you'll have to give up some of your assets in exchange for access to the lender's cash. Unlike unsecured loans, where you have total control over the amount that you'll receive, secured loans tend to be more expensive to get, as you'll have to pay interest on top of the principal amount of the loan. Some forms of secured loans include personal loans, car loans, lines of credit, mortgages, credit cards, etc.

Conclusion

When it comes to personal loans, the two main types of loans used are traditional and government-sponsored. Traditional loans, like those offered by credit unions and banks, typically charge higher interest rates and are typically longer-term. Government-sponsored loans, meanwhile, are generally shorter-term loans that are issued by state governments. And while both offer favorable terms, you'll have to remember that they are non-refundable, meaning you'll either end up owing money on the day you're due to pay back the loan or not. Additionally, unsecured loans tend to have lower interest rates than secured ones.