We all know what a loan is, but did you know there are no less than 12 distinct types? These vary based on their specific function, including the amount which can be borrowed, over how long, how the rates and fees are calculated, the payment terms, and many other features. Most of us will have some kind of loan in our lifetime, and many of us will have several different ones from the list below:
Aimed at those entering the expensive world of higher education, college campuses are full of students that have paid for their schooling via tailored made loans. Federal student loans are offered to those who fall under a certain level of household income and other criteria. Other students seek out private lenders. Student loans tend to have low comparative interest, and the borrower doesn’t always have to begin to repay until they graduate.
The big daddy! A mortgage will be the single largest amount of money most people will ever borrow in the lifetime, and for good reason. It’s used to buy a home. The property itself is held as collateral, so if you fail to make payments it can be foreclosed and sold on to recover what is owed.
If you want to purchase a nice car upfront, one popular option is to buy it on finance and kick in some interest over the long haul. These are offered by regular lenders and dealerships themselves, and come with typical monthly terms.
A catch-all term for an all purpose loan issued to an individual. If you went in to a bank and asked for a loan that wasn’t for a home, business or car, this is what you would be issued. They typically range from a few hundred dollars up to $£00,000, unsecured, but the average amount sits below £10,000. They are commonly used to pay for holidays, make large one of purchases, or consolidate other debts.
One way the US Government helps its military veterans is to given them easy access to credit, so they can fund the purchase of a home or other life essentials. The Department of Veterans Affairs themselves acts as the cosigner through private lending channels, so no matter what the credit history of the veteran, they will be eligible for a loan. This also helps lower interest rates.
Small Business Loans
As the name suggests small business loans are aimed at those launching new businesses, which just need a bit of extra funding to get off the ground and become profitable. Private lenders offer these, as does the U.S. Small Business Administration (SBA). As long as you can demonstrate that the business will grow, entrepreneurs with good credit are likely to be approved.
Payday loans differ from most other types of loan in that they are not paid back in instalments. The full principal and interest is expected to be repaid in as fast as two weeks, because they are designed to tide the borrower over until their next pay check. This is why the typically come in small amounts and with high interest rates.
Borrowing from Retirement & Life Insurance
If you have spent many years paying in to retirement or life insurance policies but have yet to cash them out, you can borrow against the balances and make use of that equity under similar terms to a loan. This isn’t yours to keep however and it must be paid back with interest.
Debt Consolidation Loans
These loans are specifically designed to pool together all of your debts in to one single loan, so they are easier to manage. In a lot of cases you will also be able to reduce interest rates as it is in the loan company’s best interest to get you as a customer.
Credit Card Cash Advance
Although the day to day use of a credit card is a bit like a loan anyway, one function you can use to extract cash from the balance is a cash advance. This can be transferred to your bank online or withdrawn from an ATM. Cash advances carry a higher interest rate than purchases.
Home Equity Loans
Home equity is the portion of your home that you own from paying down the mortgage. You can take out a new loan – home equity loan – against this portion to get access to cash. Like the mortgage itself, this new loan is secured by the property, so in many ways you are extending your mortgage further in to the future.
Informal loans refer to money you have borrowed from friends and family. If so inclined a promissory note or other legal document can be used to make it legal.