Types of loans
There are a lot of different types of loans, here just some of them:
By loan guarantee, a loan can by secured or unsecured:
- A secured loan is a loan in which the borrower pledged some asset (e.g. car or property) as collateral.
The most popular secured loans are mortgages and car loans, as they are backed or secured by collateral. The bank or financial institution, is given security (a lien on the title to the house) until the loan is paid off in full. If the borrower defaults on the loan, or doesn't pay back the loan, the bank would have the legal right to repossess the house or the car (the collateral) and sell it, to recover sums owing to it.
- Unsecured loans are not secured by any asset. The conditions for unsecured loans are different,
usually the term of unsecured loans is shorter, interest rates are higher.
Examples of unsecured loans are:
- credit card debt,
- personal loans,
- bank overdrafts,
By targeted use, a loan can be (some popular, but not all types):
- Personal loans are loans proposed at almost any
bank. The difference of this type of loans is that the borrower can spend it how they like, for any needs.
These loans are usually:
- Small amount (about $5000),
- Medium interest rate, higher than for secured loans,
- Can be given if the borrower has an average credit history.
- Student loans are very popular loans for students.
Usually they are:
- With a deferred period of the first repayment. This period is equal to the duration of studding. So, repayment is not required until the student completes (or abandons) their education.
- With very reasonable interest rate.
- Mortgage loans are secured loans with:
- Maybe the biggest amount that can be proposed to the person,
- Collateral of the bought or existing house, apartment or other real property,
- With really long term of loan, usually 30-years,
- With tax-deductible interests which are fairly low compared to other loans.
- Small business loans are loans for starting or rebuilding a small business. They usually:
- Do require a little more work than normal and often require a business plan,
- Are secured loans, so require pledging some personal assets as collateral.
Sure, there are other types of loans, for example by payment schemas or by repayments schemas, so, be careful to use them!