A Guide to Different Loan Types
If you're thinking of taking out a loan, you might be surprised to discover exactly how many different loan types are available to meet your needs. Of course, not all of the different loan types will be appropriate for your specific situation; you need to take the time to explore your options so as to determine which loans would be best for you and your financial situation.
In order to find which of the different loan types available to you are most likely to serve you well, the guide below will give you some basic information about some of the more common loan types and some of the advantages or disadvantages that are often associated with them.
Secured Loan
One of the more common loan types that you will find is the secured loan. These loans use some item of value, which is known as collateral, as a security deposit to guarantee that the loan will be repaid as per the loan agreement. This added security reduces the risk for the lender and allows them to offer lower interest rates and more flexible loan terms, even to people who have had credit problems in the past.
Unsecured Loan
Another of the common loan types is the unsecured loan. These loans do not use collateral, and as a result can be more difficult to find if you've had problems with your credit history. Unsecured loans often have higher interest rates than their secured counterparts, and generally have more strict loan terms as well.
Debt Consolidation Loan
One of the more useful loan types for people with credit problems, a debt consolidation loan allows you to borrow money and use it to repay some or all of your older debts. While you still owe the same amount afterwards, you'll be able to make payments on this amount as a single monthly payment instead of the multiple payments you might have been struggling with previously. These loans are most often secured loans.
Mortgage Loan
Another of the more useful loan types, mortgage loans are secured loans which are used to purchase a house or other real estate. The property that is purchased serves as the collateral that secures the loan, and the borrower generally has a much larger period of time to repay the money than with many loans. An average mortgage loan repayment period can be anywhere from 10 to 30 years.
Home Equity Loan
A loan type that's related to the mortgage loan, a home equity loan is one that is secured by the value of the purchased home and how much of that value has been repaid. The more money that has been invested into the house by repaying the mortgage, the higher the equity value of the property is and the more money can be borrowed against it. Home equity loans are popular for debt consolidation, home improvements, and a number of other purposes.
Home Improvement Loan
One of the loan types that's been increasing in popularity, home improvement loans are used to do repairs, additional construction, and remodeling or redecorating to a house or other property that you own. They are secured against the property itself, and generally carry lower interest rates because the improvements being done raise the overall value of the collateral.
Automotive Finance Loan
Automotive finance loans are one of the loan types that are most used. These loans are granted for the purchase of a new or used vehicle, and use the purchased car, truck, or van as the collateral that guarantees the loan.
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